More mortgage pain for homeowners with the Bank of England poised to hike interest rates to 4% TODAY after rising inflation, but how far will they go?
- Bank of England announces latest interest rate decision at noon today
Homeowners are facing more trouble today with the Bank of England about to raise interest rates again.
The base rate is expected to rise from 4 percent when the decision is announced at noon, with 0.25 points considered most likely by analysts.
Markets were split on whether Threadneedle Street would continue its streak of 10 consecutive gains, and market anxiety in the wake of the Silicon Valley Bank and Credit Suisse collapses weighed heavily.
However, yesterday’s surprising rise in inflation, with the CPI rising from 10.1 percent to 10.4 percent in the year to February, has increased pressure on the Bank.
The US Federal Reserve also went ahead with a 0.25 point rise overnight, meaning traders will be surprised if UK rates don’t follow suit.
An increase would bring the base rate closer to pre-credit crunch levels and further squeeze families already struggling to deal with the cost-of-living crisis.
Inflation was expected to continue its downward trajectory in February, but the pace of prices picked up again.
The higher CPI was driven by shortages of salads and vegetables, along with an increase in the cost of restaurants and pubs.
The Bank of England raised interest rates from 3.5% to 4% last month
Homeowners face more trouble today with the Bank of England poised to raise interest rates again (Governor Andrew Bailey pictured)
Earlier this week, markets were betting there was a 50/50 chance the bank rate would stay at 4 percent, but after the inflation numbers, a quarter percentage point increase was seen it was 95 percent safe.
In Budget last week, Jeremy Hunt outlined the Office for Budget Responsibility (OBR) forecasts that inflation will fall to 2.9 percent by the end of this year.
But the chancellor said yesterday: “The fall in inflation is not inevitable, so we must stick to our plan to halve it this year.”
The pound rose more than a cent against the dollar to just $1.23, its highest level since early February, in the hours after the data was released on heightened expectations of a rate hike.
Paul Dales, chief UK economist at Capital Economics, said: “The reacceleration of CPI inflation in February may be enough to tip the Bank of England towards raising interest rates from 4% to 4.25% tomorrow. , despite the recent turmoil in the global banking sector”. system.’
Inflation rose to a four-decade high of 11.1 percent last year after an already entrenched price spiral accelerated as a result of Russia’s invasion of Ukraine, which sent up energy costs.
Interest rates have risen sharply as the Bank of England strives to reduce inflation towards its 2 percent target, although some members of its rate-setting committee have argued of late that signs that inflation will ease in the next few months mean you should take a break. .
Craig Erlam, senior market analyst at OANDA, said the inflation figures were a “crushing blow” for the bank.
He said: “Any flexibility the Bank of England thought it would have on Thursday was wiped out by the inflation data on Wednesday morning and once again the talking point has shifted to whether 0.25 percentage points will be enough.” “.
He added that “there is nothing to justify a pause” in raising interest rates, “even in the context of financial stability concerns and the spillover effects of aggressive rate hikes.”
ING Economics suggests that the Bank of England will want to see more evidence that inflationary pressures are easing more broadly before ending its rate hike cycle.
Jeremy Hunt (pictured yesterday) has shown the Office for Budget Responsibility (OBR) forecasts that inflation will fall to 2.9 percent by the end of this year.
ING experts also forecast a 0.25 percentage point rise, but said it could be the final rise before rates fall again.
Meanwhile, Investec Economics agreed that the worse-than-expected inflation reading will make the MPC’s decision more difficult, but predicted that the Bank will take a “wait and see approach” and keep rates at 4 percent. cent while assessing the situation. .
Ellie Henderson, economist at Investec, said: “In deciding on the appropriate level of the bank rate, the MPC will have to assess the lesser of two evils: the risk of inflation staying higher for longer or the current threat to financial stability stemming from rapidly evolving fears of a banking crisis.’