Interest rates are set to hit 5% next year as the Bank of England is forced to step up the fight against inflation after Kwasi Kwarteng’s £45billion tax cut windfall
Interest rates are set to hit 5% next year as the Bank of England is forced to step up its fight against inflation after Kwasi Kwarteng’s £45billion tax cut windfall.
Analysts believe rates need to rise more than previously thought as the mini-budget boosts the economy – and inflation.
Rates have already gone from 0.1% to 2.25% since December.
Increase: rates have already increased from 0.1% to 2.25% since December
And investors are betting they will hit 5.25% next year, their highest level since 2008. This development could even include a one percentage point hike at the next meeting of the Monetary Policy Committee (MPC). in November.
Jagjit Chadha, director of the National Institute of Economic and Social Research, said the mini-budget would lead to a shorter recession and stronger economic growth. But he added: ‘The potential inflationary effects of this are likely to lead to the Bank of England raising rates more aggressively than previously expected.’
“We expect it to peak at around 5% in the third quarter of 2023.”
Kwarteng called the Bank’s independence “sacrosanct”.
Leveling Up secretary Simon Clarke urged the Bank to step up its fight against inflation, which was 9.9% last month. When asked if the Bank was “asleep at the wheel” last year because of inflation, he replied: “I don’t believe they were.”
He told LBC Radio: “We have faith in the MPC and obviously we want them to step up their efforts to curb inflationary pressures and we welcome the steps they are taking to do so.”