Borrowers should brace for interest rates to hit 2pc

INTEREST rates could rise four-fold over the next three years as the Bank of England steps up its fight against inflation.

A senior economist at the central bank yesterday suggested rates could be as high as 2pc by 2020 – pushing up borrowing costs for millions of families.

But such a move would be welcomed by savers who have suffered paltry returns on their nest eggs since rates were slashed to rock bottom levels in the financial crisis.

The Bank raised rates for the first time in over a decade in November, from 0.25pc to 0.5pc. It is widely expected to strike again in May by increasing rates to 0.75pc amid signs that wages are picking up.

But Gertjan Vlieghe, who sits on the Bank’s Monetary Policy Committee (MPC) that sets rates, suggested households and businesses should expect further hikes over the course of its forecast period, which stretches out for three years to early 2021.

‘The outlook is, in my view, consistent with one or two quarter point rate increases per year over the forecast period,’ he said.

But he added: ‘There is significant uncertainty about the path of rates, and both lower and higher paths are possible, depending on how the economy evolves.’

Two MPC members – Ian McCafferty and Michael Saunders – unexpectedly broke ranks to call for an immediate rate hike this week.

Although the pair were overruled, analysts said it points to an increase in May.