Bank of England Poised to Raise Interest Rates for 13th Time in a Row Amid Mounting Pressure on Households

Strategic Insights -

The UK's Consumer Prices Index (CPI) remained unchanged in May at a rate of 8.7%, according to the Office for National Statistics, disappointing economist expectations and piling pressure on households. The Bank of England's Monetary Policy Committee (MPC) is likely to raise interest rates on Thursday, from the current rate of 4.5%, and more hikes are anticipated. Financial markets are expecting a 0.25 percentage point increase to 4.75%, but there's a 40% chance of a 0.5 percentage point rise to 5%. The surge in expectations of where rates will peak has surged in recent weeks, with markets anticipating a high of 6% by early next year, which would be the highest level in over two decades. Chancellor Jeremy Hunt has spoken to consumer champion Martin Lewis, who stated that a mortgage ticking time bomb is now "exploding", ahead of meeting with Britain's major lenders on Friday.

Key Takeaways:

  • The UK's Consumer Prices Index (CPI) remained unchanged in May at a rate of 8.7%, according to the Office for National Statistics.
  • Economist expectations have been disappointed for the fourth consecutive month, indicating persistent inflation despite the Bank's efforts.
  • The Bank of England's Monetary Policy Committee (MPC) is likely to raise interest rates on Thursday, with a 40% chance of a 0.5 percentage point rise to 5%.
  • Financial markets are anticipating a 0.25 percentage point increase to 4.75%, with a 60% chance of a smaller increase.
  • The average two-year fixed residential mortgage rate has surpassed 6%, according to data from Moneyfactscompare.co.uk.
  • Expectations of where rates will peak have surged in recent weeks, with markets now anticipates a high of 6% by early next year.
  • It would mean rates hit the highest level in more than two decades, adding further pressure on households and the mortgage market.
  • Chancellor Jeremy Hunt has spoken to consumer champion Martin Lewis, who has stated that a mortgage ticking time bomb is now "exploding" ahead of meeting with Britain's major lenders on Friday.
  • The MPC will think long and hard about the impact of rate expectations on the mortgage market and households, said Sandra Horsfield, economist at Investec Economics.

Statistics:

  • UK's Consumer Prices Index (CPI) remained unchanged in May at a rate of 8.7%, according to the Office for National Statistics.
  • Current interest rate stands at 4.5%, with a likely increase of 0.25 percentage points to 4.75% or 0.5 percentage points to 5%.
  • 40% chance of a 0.5 percentage point rise to 5%.
  • Financial markets are anticipating a high of 6% by early next year.
  • Average two-year fixed residential mortgage rate has surpassed 6%, according to data from Moneyfactscompare.co.uk.
  • 60% chance of a smaller interest rate increase.

Sources:

  • Office for National Statistics
  • Investec Economics (Sandra Horsfield)
  • Moneyfactscompare.co.uk
  • BBC News (Chancellor Jeremy Hunt)
  • BBC News (Martin Lewis)