The Bank of England could opt for a ‘shock and awe’ rate hike later today in another bold move to crush inflation.
Many traders predict the central bank’s rate-setting Monetary Policy Committee (MPC) will stick with a smaller increase of 0.25 percentage points to 5.25 per cent.
But more than a third believe the Old Lady could implement another 0.5 per cent rise similar to that performed in June following higher-than-expected inflation data.
The market is in agreement, however, that the Bank will hike rates for the fourteenth time in a row as it struggles to bring down the pace of price rises.
Even if the increase is at the lower end of the scale, it will still mean rates will be at their highest level in 15 years.
Predictions: Many traders believe the Bank of England could implement another 0.5% rise similar to that performed in June
There was some cause for hope last month when official data showed inflation cooled to 7.9 per cent in June from 8.7 per cent in May but this was still well above the Bank’s target of 2 per cent.
But the thorny issue is core inflation, which strips out more volatile prices such as food and energy, and which is proving to be ‘stickier’ than expected.
Altaf Kassam, of State Street Global Advisors, told Bloomberg Radio that there is at least another 50-basis points of hikes to come, which would be best in two 0.25-percentage-point increments. But he added that ‘[you] can’t rule out a shock-and-awe announcement’.
Althea Spinozzi, strategist at Saxo Markets, said the UK’s economic backdrop ‘calls for another 0.5 per cent rate hike’ but noted the Bank could opt for a smaller increase due to a fear of ‘overtightening’ which could tip the economy into recession.
Rishi Sunak is particularly hopeful inflation will continue to fall sharply across the rest of the year following his pledge to bring the pace of price rises down to 5 per cent by the end of 2023.
The Prime Minister told LBC Radio yesterday that families could see ‘the light at the end of the tunnel’ on inflation.
Traders are predicting rates will end the year at around 5.75 per cent, levels not seen since July 2007, and are also expected to remain elevated well into 2024.
It promises to cause further pain for mortgage holders, many of whom are already facing rocketing repayments as they roll off fixed-term deals and are whacked with higher rates.
The housing market is already beginning to creak as a result of higher mortgage costs, with property prices dropping 3.8 per cent year-on-year last month, the largest fall since 2009.
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