Ouch! Borrowers are warned that interest rates will hit 4% in just two weeks as bank bosses continue the battle against inflation
- Bank of England set to raise interest rates to 4% in just a fortnight
- There are fears that rising interest rates could tip Britain into recession
- But growth of 0.1% in November made an immediate recession unlikely.
The Bank of England is set to raise interest rates to 4% in a fortnight as it steps up its fight against stubbornly high inflation.
In another blow for borrowers, experts predict the Bank will raise the rate from its current figure of 3.5% to the highest level in nearly 15 years.
The Bank has already raised rates from a record low of 0.1% in December 2021 in a desperate effort to fight inflation.
This drove up the cost of mortgages and other loans, slowing the economy.
The Bank of England is set to raise interest rates to 4% in a fortnight as it steps up its fight against stubbornly high inflation
There are fears that rising interest rates could tip Britain into recession, although economic growth of 0.1% in November made an immediate collapse unlikely.
The decision of the Bank’s monetary policy committee whether or not to raise its key rate will be announced on Thursday, February 2.
The forecast came as data yesterday showed inflation stood at 10.5% in December, down from 10.7% the previous month and the 41-year high of 11.1% recorded in October. The Office for National Statistics (ONS) said a major reason for the fall was a sharp fall in the cost of petrol and diesel as well as slower increases in the prices of clothing and footwear.
But these were offset by rapid increases in food prices, which rose 16.8% year-on-year, the biggest increase since 1977 and higher than expected.
There are fears that rising interest rates could tip Britain into recession, although economic growth of 0.1% in November made an immediate collapse unlikely
Travelers looking to fly abroad have also had to contend with skyrocketing prices, with the cost of air travel soaring 44.1% last month, the biggest rise since records began in 1989.
The figures follow comments earlier this week from Ryanair boss Michael O’Leary who said fares would continue to rise in 2023.
A sharp rise in coach ticket prices also pushed road transportation costs up 11.3% in the month, partially offsetting lower fuel prices at the pump.
Ruth Gregory, senior UK economist at research firm Capital Economics, said while the data confirmed inflation was falling, it remained “far” from the Bank of England’s 2% target and the “battle is not yet won”.
As a result, she expected the bank to raise interest rates to 4% next month before hitting a high of 4.5%.
“We doubt the Bank of England will suspend rate hikes for a few more months,” Ms Gregory added.
But in good news for the government, Capital Economics predicted that inflation would fall to around 4.2% by the end of this year, allowing Prime Minister Rishi Sunak to deliver on his promise to halve inflation. in 2023. Responding to the numbers, Chancellor Jeremy Hunt said high inflation was currently “a nightmare for family budgets” and was also destroying business investment.
‘Even so difficult, we must stick to our plan to bring it [inflation] down,” he said, adding that the government would make “the necessary tough decisions and see the plan through.”
Pressure to reduce inflation intensified earlier this week when official figures showed that while wages were rising at their fastest rate in over 20 years, wages had fallen by 2.6% in real terms between September and November due to soaring prices.
Private sector workers saw an average annual pay rise of 7.2% during the period, the largest increase on record outside of the pandemic, while those in the public sector – such as NHS staff and teachers – saw smaller increases of 3.3%.
Public sector workers have been angered by their raises, with ministers’ resistance to demands for pay rises sparking waves of strikes.