A steep hike in interest rates would be a mistake
Financial markets have been placing bets on sharp increases for a while. Those are unlikely and would be an overreaction, writes Phil Thornton
The Bank of England’s monetary policy committee (MPC) has been sending out signals about the need for hikes in interest rates to control inflation.
Unsurprisingly the financial markets have latched on to this, ratcheting up their expectations for the Bank’s base interest rate to hit 1.6 per cent by the end of the year, implying as many as four more quarter-point hikes from the current 0.5 per cent level.
It is easy to see why. Not only was the MPC unanimous about the need for a rate rise last month, but four of the nine members wanted a half-point rise to 0.75 per cent. Furthermore, prices are clearly rising, with the annual rate of inflation hitting a 30-year high of 5.5 per cent in January with expectations of it reaching 7.5 per cent in April.
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