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Ouch! Borrowers warned interest rates will hit 4% in just two weeks as Bank of England continues inflation battle
- The Bank of England is expected to raise rates to 4% in two weeks
- Rising interest rates are feared to push Britain into recession
- But growth of 0.1 percent in November made an immediate slump unlikely
The Bank of England is expected to raise rates to 4 percent in two weeks as it ramps up its fight against stubbornly high inflation.
Another blow to borrowers is that experts predict the Bank will raise interest rates from the current 3.5 percent to the highest level in nearly 15 years.
The Bank has already hiked rates from a record low of 0.1 percent in December 2021 in a desperate bid to tackle inflation.
This has driven up the cost of mortgages and other loans, slowing the economy.
The Bank of England is expected to raise rates to 4% in two weeks as it ramps up its fight against stubbornly high inflation
Rising interest rates are feared to push Britain into recession, although economic growth of 0.1 percent in November made an immediate slump unlikely.
The decision of the Bank’s monetary policy committee on whether or not to raise the base rate will be announced on Thursday 2 February.
The predictions came as data from yesterday showed inflation was 10.5 percent in December, down from 10.7 percent the previous month and a 41-year high of 11.1 percent recorded in October. .
The Office for National Statistics (ONS) said a key reason for the decline was a sharp fall in the cost of petrol and diesel, as well as a slower rise in the prices of clothing and footwear.
But these were offset by rapid increases in food prices, which rose by 16.8 percent year on year, the biggest increase since 1977 and higher than previously expected.
Travelers looking to fly abroad also faced eye-watering price increases as the cost of air travel rose 44.1 percent last month, the biggest increase since records began in 1989.
The figures followed comments earlier this week from Ryanair boss Michael O’Leary, who said fares would continue to rise in 2023.
A sharp jump in bus ticket prices also drove road transport costs up 11.3 percent over the month, partially offsetting the fall in fuel prices at the pump.
Ruth Gregory, senior UK economist at research firm Capital Economics, said that while the data had confirmed inflation was falling, it was still “a long way” from the Bank of England’s target of 2 per cent and the “struggle is still on”. not won’.
As a result, she expected the bank to raise rates to 4 percent next month before peaking at 4.5 percent.
“We doubt the Bank of England will allow a few more months for interest rate hikes,” Gregory added.
But good news for the government: Capital Economics predicted that inflation will fall to around 4.2 percent by the end of this year, allowing Prime Minister Rishi Sunak to fulfill his pledge to cut inflation in half by 2023. Jeremy Hunt said high inflation is currently “a nightmare for household budgets” and also destroyed business investment.
“As difficult as it is, we must stick to our plan to deliver it [inflation] he said, adding that the government would “make the tough decisions that were needed and implement the plan.”
Pressure to reduce inflation intensified earlier this week as official figures showed that while wages grew at their fastest rate in more than 20 years, wages fell by 2.6 percent in real terms between September and November due to the rising prices.
Private sector workers saw an average annual pay rise of 7.2 per cent over that period, the highest increase ever recorded outside the pandemic, while those in the public sector – such as NHS staff and teachers – saw smaller increases of 3.3 per cent .
Public sector workers are angry about their pay rises, with ministers’ resistance to demands for wage increases sparking waves of strikes.