The Bank of England will deliver another 0.5 percentage point increase in interest rates next month as it steps up its fight against inflation, experts warn.
In a further blow to households dealing with higher borrowing costs, a Reuters poll found 30 of 51 economists expect rates to jump from 1.75 per cent to 2.25 per cent in September.
The other 21 forecast a more modest 0.25 percentage point rise to 2 per cent. Last week, the Bank raised rates by 0.5 percentage points from 1.25 per cent to 1.75 per cent – the biggest increase in 27 years.
Inflation fight: Last week, the Bank raised rates by 0.5 percentage points from 1.25 per cent to 1.75 per cent – the biggest increase in 27 years.
It has raised rates from record lows of 0.1 per cent in December as it battles runaway inflation.
Inflation hit a 40-year high of 9.4 per cent in June and official figures tomorrow are likely to show it close to 10 per cent in July.
The Bank believes it will top 13 per cent this autumn as energy bills soar. But there are fears the battle to tame inflation – and return it to the 2 per cent target – will tip the economy into recession as higher interest rates hit spending and investment.
Official figures last week showed the economy contracted by 0.1 per cent in the second quarter of the year.
A further decline in the third quarter would mean the UK is in recession.
‘With growth slowing, it is tempting to assume the Bank will be thinking of hitting the brakes, and could even be cutting rates within the next year,’ said Elizabeth Martins, an economist at HSBC.
‘But for now at least, the problems are supply and inflation driven – allowing inflation to rise even further risks only making the situation worse.’
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