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Homeowners today could be hit by the biggest rise in interest rates in more than 30 years, potentially adding hundreds of pounds to mortgage payments.
The Bank of England is expected to raise interest rates by 0.75 percentage points to 3 percent over lunch, the highest level since the global financial crisis in 2008.
It would be the largest daily increase since Black Wednesday in 1992 and the largest increase since 1989.
Central bankers want to get a grip on the runaway inflation plaguing British households.
And more bad news for the hard-pressed Britons, Karen Ward, a member of Chancellor Jeremy Hunt’s economic advisory board, predicted this morning that interest rates will hit 5 percent in the coming months.
More than 1.5 million households, who have tracker or standard variable mortgages, will immediately feel the pain as the rise in the base interest rate seeps through. Borrowers with a standard variable mortgage of £200,000 could see their repayments rise by more than £1,000 a year if the Bank raises interest rates to 3 percent.
In a crunch meeting, the nine members of the Monetary Policy Committee, including Governor Andrew Bailey, will make a decision that could increase the amount millions of mortgagees must pay their banks each month.
It anticipates the Chancellor’s autumn statement on November 17, in which he is expected to implement significant tax increases and budget cuts.
One of the proposed tax increases could be an increase in the windfall tax on the profits of energy giants.
The prime minister and his chancellor plan to extend the levy on oil and gas companies to raise an estimated £40 billion in five years, The Times reported.
They reportedly want to raise the rate from 25 percent to 30 percent, extend the tax from 2026 to 2028 and extend the scheme to electricity producers.
In a crunch meeting, the nine members of the Monetary Policy Committee, including Governor Andrew Bailey, will make a decision that could increase the amount millions of mortgagees must pay their banks each month.
Mr Bailey has said it is likely that the rate hike could be greater than the 0.5 percentage point increase to 2.25% seen at the previous meeting, adding a further 0.75% to 3%
The prime minister and his chancellor plan to extend the levy on oil and gas companies to raise an estimated £40 billion in five years, The Times reported.
If the Bank – as expected – raises interest rates by 0.75 percentage point, that would be the biggest increase since Black Wednesday. On September 16, 1992, interest rates rose twice: from 10 percent to 12 percent in the morning and then to 15 percent in the afternoon.
Today is also the eighth time in a row that the Bank has raised interest rates. Less than a year ago it was 0.1 percent.
Earlier this month, markets had predicted that the rate hike could reach as much as one percentage point, but sentiment has calmed somewhat after the Chancellor and Prime Minister’s changes and Bank of England bond purchases weighed down borrowing costs.
Markets have also witnessed a diminished appetite for major gains worldwide, with the Bank of Canada raising its interest rate by 0.5 percentage points, below the 0.75 percentage point increase widely forecast.
But last night, the US Federal Reserve raised interest rates by 0.75 for the fourth time in the same number of months.
Chairman Jerome Powell indicated that interest rates will have to go higher than previously thought to contain an unprecedented inflation rate not seen in decades.
Last month, Bank of England governor Andrew Bailey said it was likely that the rate hike could outweigh the 0.5 percentage point rise to 2.25 percent at the previous meeting.
He said on October 15: “As things stand today, my best guess is that inflationary pressures will require a stronger response than we might have thought in August.”
Deutsche Bank analysts have said they expect the Bank of England to opt for a 0.75 percentage point increase with a parts vote.
The company’s experts said they expect the latest Bank of England forecasts, also released Thursday, to show that “the economic outlook has deteriorated further.”
They added: ‘Depending on market prices, the UK economy is likely to enter a deeper and longer-lasting recession.’
The Bank will also confirm its longer-term inflation expectations, which should show that the cost of living will be much higher than the central bank’s 2% target next year.
ING’s developed markets analyst James Smith also had a bleak forecast for Bank’s most recent economic outlook.
“The new set of forecast forecasts, which are critically based on market interest rate expectations, are likely to be bleak – both a deep recession and inflation falling below target in the medium term,” he said.
“That should be read as a not-so-subtle hint that market prices are not in line with the inflation target.”