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Wales Online
Wales Online
National
Steve Houghton

Bank of England expected to raise interest rates to 0.75pc as inflation soars

Interest rates are expected to hit 0.75 per cent next week amid fears that the Bank of England could push them up to as much as two per cent by the end of the year.

Last month the Bank forecast that consumer price inflation - a measure of rising prices - would peak at about 7.25 per cent in April. That is when household gas and electricity bills are due to rise by around 54 per cent when a price cap set by Ofgem changes.

However, an inflationary rate of eight per cent is now being predicted for later this year, with a rise in interest rates one method that can be used to quell it, making borrowing more expensive. The pressure on the bank has been raised several levels because of Russia's invasion of Ukraine.

This has pushed up some prices, including for natural gas, which is now 60 per cent higher than when the Bank met in February, before Russian president Vladimir Putin's troops moved into Ukraine. A quarter-point interest rate increase on Thursday - the Bank's third since December - would bring the cost of borrowing in the UK to the level it was two years ago, before the Covid-19 pandemic struck.

Experts say higher interest rates will not halt a short-term rise in inflation, and that the increase in energy prices will squeeze household living standards, ultimately reducing inflation. They say the Bank has to achieve a fine balance.

James Smith, research director at the Resolution Foundation think-tank, said: "I think it's really tough for the Bank at the moment to get this right. If they go too slowly, you get the inflation shock. If they go too fast, it chokes off recovery. And then there is a recession risk on top of that."

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