Inflation fuels investors’ bets on Bank raising interest rate to 4pc

INVESTORS have ramped up bets on another aggressive rate rise from the Bank of England next month after official data confirmed inflation remains in double digits.

Consumer prices grew at 10.5pc in December, the Office for National Statistics (ONS) said, down from 10.7pc in November.

The figures prompted traders to ramp up bets that the Bank will have to go further in its tightening and raise rates more than anticipated.

The markets now expect rates to peak at 4.5pc in August, up from 4.4pc before the figures, while bets on a 0.50 percentage point increase next month also rose. Credit Suisse said that persistently high core inflation, higher than expected wage growth and a more resilient economy will heap pressure on the Bank to keep increasing rates and keep them higher for longer.

“These strong numbers should mean that it’s too early for the BOE to downshift the pace of hikes from 50bps to 25bps,” said Sonali Punhani, the head of UK Economics at Credit Suisse.

“We expect no rate cuts in 2023.”

The prospects of more tightening boosted the pound, which jumped as much as 1pc against the dollar to climb above $1.24.

While inflation remains above 10pc, it continues to decline from a 41-year high of 11.1pc reached in October. Fuel prices were largely behind December’s slowdown. Costs at the pump fell, with diesel becoming 8.8p cheaper per litre and petrol 8.3p.

However, food prices continue to soar and remain at a 45-year high. Prices for milk, cheese and eggs are rising the fastest.

The ONS data mean millions of phone and broadband customers are in line for inflation-busting price increases that will add more than £50 to the average annual bill.

BT said its price increases were needed to keep up with the fact that consumers were using up to 50pc more data every year.

A spokesman for Virgin Media O2 said Virgin had not yet announced how much its prices will increase by.

A Vodafone spokesman said the company had not confirmed its final price increases.

‘These strong numbers should mean it’s too early for the BOE to downshift the pace of hikes’