Bank of England forecast to raise interest rates to 1.75% to fight inflation

Inflation: Victoria Scholar discusses rise in interest rates

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The financial institution’s Monetary Policy Committee (MPC) is due to meet next week to come to a decision over whether the base rate will be hiked once again. Set by the Bank of England, the base rate is the interest rate that is charged on commercial banks for loans. Currently, the UK’s base rate is at 1.25 percent and financial analysts “expect” it will be raised by 50 basis points or 0.5 percent.

Earlier this summer, the Bank of England raised the rate for the fifth consecutive time in a row to a 13-year high.

This comes as inflation in the UK hits a 40-year high of 9.4 percent, exacerbating the continuing cost of living crisis.

Financial experts estimate that the inflation rate could reach as high as 12 percent by the end of year which will put further pressure on policymakers to react.

While savers are likely to see benefits from another hiked base rate, mortgage holders will have to deal with their payments rising once again.

READ MORE: State pensioners may be able to increase sum by up to £14.75 weekly

Those dealing with debt payments will also be detrimentally affected if interest rates go up once more.

Experts from ING believe another rise to the base rate will happen in September before the Bank of England eases on intervening in the economy.

James Smith, an economist at ING emphasised that the current prediction is for further action to be taken to address the rising inflation rate.

Mr Smith said: “We expect a 50 basis point rate hike from the Bank of England next week, its first such move this cycle.

“That’s not because the data we’ve received since June’s 25 basis point hike decision has moved the needle all that much – it hasn’t.

“But policymakers hinted back in June that they could act ‘forcefully’ to get inflation lower. And with a 50 basis point move more-or-less priced, that’s what we expect them to do.”

However, he noted that the Bank of England’s “window” for further intervention will likely come to an end soon.

The financial expert added: “Even so, the window for further rate hikes feels like it’s closing.

“Markets have already pared back expectations for ‘peak’ Bank Rate from 3.5 percent to 2.9 percent, though that still implies two further 50bp rate hikes by December, plus a little more thereafter.

“That still feels like a stretch. We’ve been pencilling in a peak for Bank Rate at two percent (1.25 percent currently), which would mean just one more 25 basis point rate hike in September before policymakers stop tightening.

“In practice, that might be an underestimate and depending on the signal the Bank sends next week, we wouldn’t rule out an additional 25, or at most 50 basis point, worth of rate hikes on top of that.”

On who will benefit from the Bank of England’s likely rate increase, AJ Bell’s personal finance head Laura Suter shared why she believes savers are the only “winners” in this debacle.

Ms Suter explained: “We’ve already seen a rates war break out in the savings market and savers are finally being rewarded for the cash they’ve stashed.

“The top easy-access account has leapt from 0.71 percent on the day the Bank of England first started hiking rates in December up to 1.71 percent today.

“A chunkier interest rate rise next week will lead to another nudge forward in savings rates, to cheers from savers.”

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