Markets are betting the Bank of England will double interest rates by the end of 2022 as investors brace for the biggest increase in 27 years at this week’s meeting.
Officials on Threadneedle Street are expected to vote for a rare 0.5 percentage point rise in interest rates on Thursday as the Bank comes under pressure from Tory MPs to tackle rampant inflation.
Worse-than-expected inflation figures and strong signals from Governor Andrew Bailey have encouraged traders to bet the Bank will raise rates to 1.75% at Thursday’s meeting, market moves suggest UK type. The sixth straight hike will lift rates to their highest level since early 2009, raising mortgage rates for millions of homeowners.
Investors are bracing for interest rates to rise above 2.5% by the end of 2022, from the current 1.25%. The last time the Bank made such a large increase in interest rates at a meeting was in 1995, before its independence two years later.
Steffan Ball, economist at Goldman Sachs, said: “Given the strong inflation data and the likely sizeable upward revision of the Bank of England’s growth forecast, we expect all MPC members to vote in favor of a 50 basis point hike next Thursday.”
He said “strong and broad-based” wage and price pressures and a “resilient” economic outlook will mean the Bank takes interest rates “into contractionary territory”.