15% Inflation’s tipped to soar again as energy costs surge
THE Bank of England is set to push ahead with its biggest rate hike in 27 years today as experts warned inflation could be heading for 15 per cent.
Officials on the monetary policy committee, which will today announce the result of its latest meeting, are expected to raise the base rate from 1.25 per cent to 1.75 per cent.
It would be the largest lift since the Bank gained independence from the Treasury in 1997, and the first 0.5 percentage point hike since 1995.
The Resolution Foundation think-tank yesterday said it was ‘plausible’ that inflation could hit 15 per cent in the first
‘Had to dip into their savings’
quarter of next year as the price cap on energy bills jumps again.
Inflation hit a 40-year high of 9.4 per cent in June but the Bank expects it to go to 11 per cent in October – far above the 2 per cent target. Higher energy prices, prompted by the end of Covid lockdowns and worsened by the war in Ukraine, have fuelled the rise. Energy regulator Ofgem will increase its cap on bills in October for the second time this year, taking the average family’s annual spending on gas and electricity to up to £3,500, according to some estimates.
The Bank of England has been keen to stop the cost of living crunch getting worse. It has been lifting interest rates since December to encourage saving rather than spending, in an effort to bring prices back under control.
A rate rise today would be the sixth since December – an unprecedented string of back-to-back hikes. While the Bank cannot control energy costs, it hopes it can prevent a wage-price spiral, where workers demand higher salaries because they think inflation will climb ever higher, pushing the cost of living up in a vicious cycle.
But while rises in the base rate should help bring inflation down over the medium term, it will add to the squeeze on mortgage holders and other borrowers in the short term as the cost of their debt climbs. Jack Leslie, senior economist at the Resolution Foundation, said: ‘With gas prices continuing to reach record levels, both households and businesses will see large increases in their energy bills throughout the winter and into 2023. How long this high inflation will last is hugely uncertain, but the cost of living crisis looks set to last longer and hit households harder than previously anticipated.’
A survey shows that almost two thirds of the public say they are worried about interest rates.
In the poll published by Ipsos yesterday, 64 per cent said they were fairly or very concerned about the prospect of higher borrowing costs – a figure that rose to 80 per cent among those aged 18 to 34.
Another 67 per cent said they were worried about the value of their savings, while concern about energy bills and the cost of living in general concerned 75 per cent and 89 per cent respectively.
The survey of 1,750 adults, which was carried out on Tuesday and yesterday, also found that a quarter of Britons had had to dip into their savings in the past six months to make ends meet.