The Bank of England is tomorrow expected to make its largest interest rate rise since Black Wednesday in September 1992 as it battles to bring double-digit inflation back to its 2 per cent target. Investors are betting that rates will rise by 0.75 percentage points from 2.25 per cent to 3 per cent.
The Bank’s nine-strong monetary policy committee, which is responsible for setting rates, will announce its decision at noon tomorrow. The committee has so far delivered seven back-to-back rate rises since last December when rates were at a low of 0.1 per cent.
Karen Ward, chief strategist for JP Morgan Asset Management and one of the four members of the Treasury’s new Economic Advisory Council, said that markets were expecting the 0.75 percentage point rise and warned that a smaller rise could spark a new round of market selling. Ward is also one of the nine economists on The Times shadow MPC who all agree on the need for the big rate rise.
How high will interest rates rise?The markets are expecting interest rates will rise to a high of around 4.7 per cent by the end of next year. However, these forecasts change regularly depending on economic and political developments. Projections for future interest rates are likely to be affected by the policies announced as part of the chancellor’s autumn statement on November 17.
Forecasts for the level at which interest rates will peak have fallen sharply over the past few weeks after the government reneged on most of the tax cuts proposed in the mini-budget. Investors had priced in a peak in interest rates of around 6 per cent following the announcement on September 23.