Bank of England to announce biggest hike in interest rates for 33 years

Food inflation soared to a record 11.6 per cent in October

The Bank of England is expected to unveil the biggest interest rate hike in 33 years on Thursday as it tries to control rising food and energy costs bringing misery to British households.

In a crunch meeting, the nine members of the Monetary Policy Committee (MPC) will make a decision that could push up the amount that millions of mortgage holders have to pay their banks every month.

The decision is expected to push up the Bank’s base interest rate from 2.25 per cent currently to 3 per cent the highest since 2008. Mortgages are decided against this rate.

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

It will also be the eighth time in a row that the Bank has hiked interest rates. Less than a year ago the rate was 0.1 per cent.

Earlier this month, markets had predicted the interest rate increase could be as much as one percentage point. But sentiment has calmed somewhat after the change of chancellor and prime minister and Bank of England bond purchases that pushed down the cost of borrowing.

Markets have also witnessed a decreased appetite for large hikes globally, with the Bank of Canada increasing its interest rate by 0.5 percentage points, below the 0.75 percentage point rise which had been widely predicted.

Nevertheless Andrew Bailey, the Bank’s governor, warned it was likely the rise in interest rates could be bigger than the 0.5 percentage point increase to 2.25 per cent seen at the previous meeting.

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

Andrew Bailey warned in October that a ‘stronger response’ may be needed to inflationary pressures (EPA)

Analysts at Deutsche Bank have said they expect the Bank of England to opt for a 0.75 percentage point rise with a split vote.

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

They added: “Conditioned on market pricing, the UK economy will likely fall into a deeper and more prolonged recession.”

Food inflation soared to a record 11.6% in October (PA Wire)

The Bank will also confirm its inflation expectations for the longer term, which are due to show that the cost of living will be much higher than the central bank’s 2 per cent target next year. It reduced its inflation forecast in its September announcement, predicting it will peak at 11 per cent in October, and remain above 10 per cent for a few months before starting to come down.

James Smith, a developed markets analyst at ING, also had a downbeat prediction for Bank’s latest economic outlook.

“The new set of forecasts due, which crucially are based on market interest rate expectations, are likely to be dismal – showing both a deep recession and inflation falling below target in the medium term,” he said.

“That should be read as an unsubtle hint that market pricing is inconsistent with achieving its inflation goal.”