Interest rate hike is coming, get ready! City bets on imminent Bank of England rise

Interest rates: Expert discusses Bank of England decision making

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The move will add more pressure to households in the UK as prices begin to rise. However, it will give savers a minor boost to their savings. City economists have predicted that the UK’s central bank will increase its official interest rate from 0.25 percent to 0.5 percent on February 3.

The Bank of England became the first big central bank to raise rates during the pandemic.

In December, the Bank of England’s monetary policy committee voted 8-1 to raise interest rates from 0.1 percent to 0.25 percent.

Many investors expect interest rates to end 2022 as high as 1.5 percent.

The forecast rates rise will directly affect about 2.2 million mortgage borrowers in the UK.

These mortgage borrowers have loans that are linked to the base rate.

It is usual for commercial banks and building societies to pass on the interest rate rises in full to mortgage borrowers.

Millions of homeowners prefer fixed rate deals rather than variable home loan rates.

The interest rate rise will give savers, who have endured historically low interest rates, a long-awaited benefit to keeping their cash in savings accounts.

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However, the interest rate is still far below the current inflation rate which is above 5 percent, so savings will still be depreciating month on month throughout the year.

Rising food prices because of supply chain issues have been one factor in inflation rising to its highest level for almost 30 years in December.

The headline annual rate of consumer price index inflation reached 5.4 percent in December, up from 5.1 percent in November.

The Bank of England has forecast that inflation will peak at a high of 6 percent in April.

However, some economists fear that the rate of price rises could exceed 7 per cent.

The Federal Reserve chairman Jerome Powell at a press conference this week said the US central bank would not make an announcement on interest rates yet.

He said: “I would say the committee is of a mind to raise the federal funds rate at the March meeting assuming that conditions are appropriate for doing so.

“The economy no longer needs sustained monetary policy support.”

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