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UK Economy: Bank of England may increase interest rates to further 3.5 percent

Bank of England

*The consequential decision in the British economy is expected to push up the Bank of England’s base interest rate from 3 percent to 3.5 percent December 2022, reportedly its highest for 14 years, as the ‘Bank isn’t out of the woods just yet’

Isola Moses | ConsumerConnect

The Bank of England, again, is expected to push interest rates even higher at its latest meeting, putting further pressure on consumers’ mortgages in the United Kingdom (UK).

ConsumerConnect learnt in a crunch meeting, the nine members of the Bank’s Monetary Policy Committee (MPC) would take a decision that could push up the amount that millions of mortgage holders have to pay their banks monthly.

The consequential decision is expected to push up the Bank’s base interest rate from 3 percent to 3.5 percent in December, to its highest for 14 years, agency report said.

The expected 0.5 percentage increase will represent a slight cooling in rate increases, after the Bank’s MPC opted for a 0.75 percentage point rise November this year – the highest single increase since 1989.

Report also indicates this will also be the ninth time in a row that the Bank of England hikes interest rates. Less than a year ago the rate was 0.1 percent, report stated.

Economists at Deutsche Bank stated they expected the rate to increase to 3.5 percent at next BoE’s meeting slated for Thursday, December 15, predicting five of the nine-strong committee to opt for this increase.

The economic experts said: “Some good news around softening inflation expectations and easing recruitment difficulties will allow the MPC to slow the pace of tightening, avoiding a second consecutive 75bps (basis point) hike.

“But the Bank isn’t out of the woods just yet.

“Persistent inflationary pressures alongside lingering labour market tightness should result in another ‘forceful’ hike.”

Meanwhile, Andrew Bailey, Governor of Bank of England, had sought to cool market expectations for how high interest rates will ultimately increase at the previous meeting, amid improvements in the value of the Pound and UK Government’s borrowing rates since September 2022.

Deutsche Bank also suggested that rates could push as high as 4.5 percent 2023, drifting from the Bank’s own previous prediction of 5.25 percent November this year.

However, experts at ING and Investec have been even more dovish, both predicting that the rate will peak at 4 percent next year.

ING’s James Smith, Antoine Bouvet and Chris Turner said in a note to investors: “When the Bank of England hiked by 75 basis points for the first time back in November, it seemed obvious that it would be a one-off move.

“The forecasts released back then suggested that keeping rates at 3 percent would see inflation overshoot (just) in two years, while raising them to 5 percent would see an undershoot.”

The experts said: “In other words, we should expect something somewhere in the middle, and that’s why we think Bank Rate is likely to peak at 4 percent early next year.”

They predicted that interest rate hikes could stop February next year, but suggested that continued wage pressures in the labour market mean the Bank could be “less swift to cut rates than the US Federal Reserve.”

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