Interest rates look set to peak at 4.5 per cent next year – far lower than previously feared.
As lower than expected inflation figures in the US put a lid on expectations of rate hikes across the Atlantic, investors are also betting on smaller increases in Britain.
In the aftermath of the mini-Budget in September, it was feared the Bank of England would raise rates above 6 per cent to bring inflation back under control.
Rates relief: As lower than expected inflation figures in the US put a lid on expectations of rate hikes across the Atlantic, investors are also betting on smaller increases in Britain
But market projections suggest rates will rise from 3 per cent to 3.5 per cent in December, 4 per cent in February and 4.25 per cent in March before peaking at 4.5 per cent in May.
That would still be the highest rate since late 2008 during the depths of the financial crisis and send borrowing costs soaring for millions.
But it is far lower than previously feared and will come as a welcome boost for Prime Minister Rishi Sunak and Chancellor Jeremy Hunt ahead of next week’s Budget.
Not only do higher interest rates drive up borrowing costs for households and businesses, they make it far more expensive to service the Government’s mammoth debt pile which stands at over £2 trillion.
Despite the Bank raising rates to 3 per cent, inflation still stands at a 40-year high of 10.1 per cent, more than five times the 2 per cent target.
Bank of England bonds sale
The Bank of England has outlined plans to sell the billions of pounds of gilts it purchased to stabilise the UK bond markets in the aftermath of Kwasi Kwarteng’s mini-Budget in September.
Between September 28 and October 14, the Bank bought £19.3bn of UK gilts to restore calm and prevent several major pension funds from collapsing as interest rates on government debt spiked.
It now plans to begin offering these from November 29 to achieve a ‘timely exit’ from the market.
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