The Bank of England is projected to announce a 13th successive rise in its benchmark interest rate, as inflation rates stubbornly hover around 8.7% as of May.
Economists anticipate an increase from the current 4.5%, with the new rate most likely reaching 4.75%, although a bump to 5% is not off the table.
This potential change, predicted to be the highest for nearly 15 years, could cause a financial pinch for homeowners. On the other hand, savers stand to gain from the rise.
The state lender has been leveraging interest rates as a primary instrument to control inflation since December 2021, in a bid to combat the escalating cost of living.
The principle behind this strategy is that higher borrowing costs due to increased interest rates would lead to less spending, consequently reducing demand and helping to stabilize price increases.
The official announcement is scheduled for 12:00 BST on Thursday, after an independent meeting of the Bank’s Monetary Policy Committee. Amongst those expecting a hike is Charlie Bean, the former deputy governor of the Bank of England for monetary policy.
Speaking on the BBC’s Today show, Bean commented: “The recent news has been unambiguously negative on the inflation front… [it] needs further rate increases.”
However, Luke Hickmore, Investment Director at Abrdn, warned that a hefty 0.5% increase might signal to the market that the Bank has lost control over inflation.
As the nation anticipates this decision, Prime Minister Rishi Sunak is expected to reiterate his commitment to halve inflation by year’s end in a speech due after the announcement.
He asserts that he bears a “deep moral responsibility to ensure the money you earn maintains its value” and believes firmly that the target can be reached if “we hold our nerve.”