Bank Of England Set To Unveil Biggest Hike In Interest Rates For Over Three Decades

Markets think the Bank of England will unveil the biggest hike in interest rates for over three decades when its decision makers meet on Thursday.

The Monetary Policy Committee (MPC) is expected to increase rates by 0.75 percentage points to 2.5 per cent.

It would be the highest interest rate that the UK has had since the financial crisis. In December 2008, the base rate was slashed from 3 per cent to 2 per cent.

It would also be the highest single increase to interest rates since 1989.

“Investors think the most likely outcome is that the MPC will increase the Bank rate by 75bp (0.75 percentage points) on Thursday,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

Act ‘Forecefully’

But he said that economists are expecting a smaller rise, to 2.25 per cent – the same 0.5 percentage point change as the Bank’s last hike.

“For a start, hawkish surprises from the MPC have been far less common than dovish ones over the last year,” he said.

“In addition, Governor Bailey openly referred to a 50bp hike ahead of the August meeting, but has not given markets a nudge to price-in a 75bp hike.

“We think that the MPC still will deem a 50bp increase to be consistent with its pledge to act ‘forcefully’, if it sees signs of more persistent inflationary pressures.”

ING economist James Smith said that the Bank of England will have to react to recent falls in the price of the pound. Sterling hit a new 37-year low against the dollar on Friday.