[ad_1]
The Bank of England is poised to raise interest rates for the 10th time in succession when its policymakers meet this week in a further squeeze on the finances of mortgage holders and businesses.
Financial markets expect a 0.5 percentage point increase in the central bank’s base rate to 4%, its highest level since the 2008 financial crisis. It comes after nine straight rate increases from the Bank’s monetary policy committee (MPC) since December 2021.
Adding to the pressure on homeowners, the anticipated rate increase also comes as the Bank faces a delicate balancing act between driving high inflation out of the system and the risk that its actions exacerbate an economic downturn.
After the rate increase expected this week, most economists polled by Reuters envisage one more rate rise – to 4.25% in March – while financial markets price in the tightening cycle ending in the middle of this year at 4.5%.
Threadneedle Street said late last year that Britain stood on the brink of a prolonged recession as the cost of living crisis forces households to cut back on their spending. After a surge in energy bills and the rising cost of a weekly shop, inflation reached 11.1% in October, but fell back slightly to just over 10% in December.
Economists have suggested that cooling inflation could help to ease pressure on the Bank for further rate rises. The central bank expected to be close to its peak for pushing up borrowing costs after one of the most aggressive campaigns to tackle inflation for decades.
Official figures, however, showed a stronger-than-expected performance for growth in gross domestic product in November and signs of resilience in the jobs market.
It comes as households come under growing pressure from rate increases, with as many as 2.7 million homeowners with short-term fixed-rate mortgages expected to pay at least £100 a month more to refinance their borrowing at higher rates.
Analysts said the Bank’s nine-member MPC was likely to be split on Thursday, with some members likely to push for a more muscular stance on raising interest rates than others, reflecting uncertainty about how far inflation will fall this year.
The MPC split three ways in December, with two members – Silvana Tenreyro and Swati Dhingra – voting to end rate increases, while Catherine Mann backed a larger 0.75 percentage point move.
The Bank’s governor, Andrew Bailey, said earlier this month that there could be a rapid fall in inflation this year after a recent drop in wholesale energy prices, but that shortages of workers across the economy could still pose a major risk.
Economists expect the Bank to cut its forecast for inflation to finish the year at 3-4%, down from a previous forecast of 5%.
Paul Hollingsworth, chief European economist for Europe at the French bank BNP Paribas, said: “We still believe that the end of the tightening cycle is nearing. Soon, we expect the MPC to shift from increasing rates to emphasising that rates will need to stay at elevated levels for a long time in order to bring down underlying inflation.”
[ad_2]
Source link
0 Comments