Hike rates

Mortgages could rise again as Bank of England prepares to hike rates

The Bank of England is set to unveil the biggest interest rate hike since the 1980s on Thursday as it tries to rein in runaway inflation battering Britain’s households.

In a crucial meeting, the nine-member monetary policy committee will make a decision that could drive up the amount millions of mortgage holders have to pay their banks each month.

The resulting decision is expected to raise the Bank’s base interest rate from the current 2.25% to 3%, the highest since 2008. Mortgages are decided on the basis of this rate.

If – as expected – the Bank were to raise interest rates by 0.75 percentage points, it would be the biggest increase since 1989.

It will also be the eighth time in a row that the Bank has raised its interest rates. Less than a year ago, the rate was 0.1%.

Earlier this month, markets had predicted interest rate hikes could reach a full percentage point, but sentiment cooled somewhat after the chancellor and prime minister change and bond purchases from the Bank of England have lowered the cost of borrowing.

Bank of England Governor Andrew Bailey (Yui Mok/PA)

Markets also saw less appetite for big hikes globally, with the Bank of Canada raising its interest rate by 0.5 percentage points, below the 0.75 percentage point hike. percentage that had been widely expected.

Nonetheless, last month Bank of England Governor Andrew Bailey said it was likely the interest rate hike could be bigger than the 0.5 percentage point rise to 2 .25% observed at the previous meeting.

He said on October 15: “As things stand, my best guess is that inflationary pressures will require a stronger response than perhaps we thought in August.”

Deutsche Bank analysts said they expect the Bank of England to opt for a 0.75 percentage point hike with a split vote.

Experts from the firm said they expect the latest forecast from the Bank of England, which will also be revealed on Thursday, to show that “the economic outlook has deteriorated further”.

They added: “Conditioned to market prices, the UK economy is likely to fall into a deeper and more prolonged recession.”

The Bank will also confirm its longer-term inflation expectations, which should show that the cost of living will be well above the central bank’s 2% target next year.

James Smith, Developed Markets Analyst at ING, also made a pessimistic prediction for the Bank’s latest economic outlook.

“The new set of expected forecasts, which are essentially based on market interest rate expectations, are expected to be dismal – showing both a deep recession and inflation below the medium-term target,” he said. -he declares.

“This should be interpreted as a not-so-subtle hint that market prices are inconsistent with achieving its inflation target.”