Interest rates

Bank of England expected to raise interest rates to 3%

A 0.75% hike in November will be the eighth consecutive interest rate hike by the UK central bank and mark the biggest increase since 1989. Photo: Maja Smiejkowska/Reuters

The bank of england (BoE) should continue its hawkish stance on interest rates over the next three months as it seeks to rein in soaring inflation, a new survey has shown.

UK household expectations remain closely aligned with financial markets, which are anticipating a 75 basis point hike at the next meeting on November 3. This will bring interest rates to 3%.

The BoE increase in interest rates by 50 basis points to 2.25% when the Monetary Police Committee (MPC) met on September 22.

According to S&P Global’s Household Interest Rate Expectations Index, the net balance of UK households expecting imminent rate hikes hit a new high of 64% – the highest figure since the first compilation of data in 2013.

Meanwhile, the proportion expecting rates to rise over the next three months hit a record high of 69%, up from 66% in September, and a high of 81% of households expecting a hike in the past few months. next six months.

Only 5% of households surveyed between October 13 and 19 think the central bank will lower its rates, unchanged over the month, and among the lowest proportion ever recorded.

The survey is based on monthly responses from around 1,500 people in the UK, with data collected by Ipsos MORI from its panel of respondents aged 18-64.

Read more: Raising interest rates is the only way to get UK inflation under control, warns Bank of England Deputy Governor

Analysts at Deutsche Bank (comics) said they expect the Bank of England to opt for a 0.75 percentage point hike with a split vote.

Meanwhile, BoE Governor Andrew Bailey said: “As things stand, my best guess is that inflationary pressures will require a stronger response than perhaps we thought in August.”

“It is clear from the survey data that households remain confident that the Bank of England will adopt aggressive monetary policy in order to combat rising inflation,” said Lewis Cooper, economist at S&P Global Market Intelligence.

“However, the peak of the rate hike cycle is less clear, with the latest data from the PMI business survey indicating an intensification of the economic slowdown in the UK, albeit with inflationary pressures strongly elevated, suggesting that Higher borrowing costs are already having a significant negative impact on business and consumer demand.

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But the MPC meeting comes amid warnings that spending cuts and tax hikes under the PM Rishi Sunak could lead to a deeper and longer lasting recession.

UK inflation topped 10% for the second time in 2022 of the year to September amid the biggest annual rise in food prices in more than 40 years.

The Office for National Statistics (ONS) said the consumer price index rose to 10.1%, back into double digits after a slight drop to 9.9% in August. City economists had forecast an increase of just under 10%.

Soaring food and drink prices have been the main driver of the Cost of life increase.

Read more: Bank of England warns UK households could face 2008 financial crisis

Threadneedle Street has battled runaway inflation this year in a bid to bring it back to its 2% target. It raised interest rates from their peak of 0.1% during the pandemic to the current rate of 2.25%.

A 0.75% hike in November will be the eighth consecutive interest rate hike by Britain’s central bank and would represent the biggest increase since 1989.

Rising interest rates also mean that households are now under pressure from Skyrocketing Mortgage Costs.

Watch: How does inflation affect interest rates?