Bank of England is expected to deliver its biggest rate increase in 33 years today

Analysts predict a 0.75 percentage-point increase, possibly the largest hike in base rate since 1989.

The Bank of England’s base rates has seen the biggest increase since 1989. This is a central bank attempt to lower the inflation rate, which will remain at least in double digits until next spring. Mortgage rates are likely to rise on Thursday.

The eighth consecutive increase in interest rates is being marked by the Bank of England. After what is likely to be a heated meeting of the Monetary Policy Committee (MPC), the Bank of England will likely push the base rate up 0.75 percentage points to 3.3%.

Economic figures indicating that Europe and the US are in recession next year suggest that members of the MPC will remain divided over whether to limit the rise to 0.5% to avoid a deeper downturn.

Rate hikes by the US Federal Reserve on Wednesday, which increased its rate by 0.75% and the ECB last week, will put pressure on the nine-strong MPC.

Last month, Bank Governor Andrew Bailey stated that the economic situation has deteriorated after the MPC signalled an increase of 0.5% in the summer.

He stated that “As things stand now, my best guess was that inflationary pressures would require a stronger response than we might have thought in August.”

Homebuyers who have a tracker or variable-rate mortgage will feel the impact of the rate increase immediately. However, the estimated 300,000.00 people who will need to remortgage in this month’s market will be able to see that the two-year and five-year fixed rates are at levels not seen since 2008 when the financial crisis.

Although the average fixed rate for a two-year mortgage has dropped to 6.47%, it is still three times as high as the rate offered earlier in the year by lenders. The average five-year fixed rate mortgage, which could be purchased for 6.51% on October 20, has fallen to 6.31%.

The bank is expected to continue its program of raising rates through next year, according to investors. Bailey however stressed that each decision is made on its merits and will be made at each meeting.

MPC members Ben Broadbent (a deputy governor of the Bank) and Catherine Mann (who joined last year as an investment banker in the US), argue that financial markets underestimate how high rates will go.

Markets have reduced the peak rate to 4.75 % in response to their intervention.

Capital Economics, a consultancy said that while the Fed and ECB are poised to signal a slowdown of rate rises, the UK’s weakening financial position meant the Bank of England would have to continue.

Many analysts however predicted that the Bank would reduce its rate increases next year due to tighter government budgets, which have reduced household spending power.

Deutsche Bank analysts have stated that they expect Threadneedle street to vote for a 0.75% increase with a split vote.

According to the experts at the firm, they expect the Bank of England’s latest forecasts, which will be released on Thursday, to show that the “economic outlook has worsened further”.


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