MPC expected to increase interest rates again

THE Bank of England is widely expected to raise interest rates again on Thursday and more hikes are firmly on the cards as policymakers battle to cool soaring inflation.

Members of the nine-strong Monetary Policy Committee (MPC) are set to increase rates from 0.25% to 0.5% as the Bank’s quarterly set of forecasts are likely to show eye-watering inflation this spring.

It would mark the Bank’s first backto-back increase since June 2004, coming after it lifted rates from 0.1% to 0.25% in December to try to rein in rampant inflation.

Financial markets are now pricing in four rises in 2022, which would see rates reach 1.25% by the year end – the highest level since early 2009.

The Bank is taking action to bring inflation back to its 2% target.

Consumer Prices Index (CPI) inflation already hit a near 30-year high of 5.4% in December and painful energy price rises are expected to push it beyond 6% this spring.

Martin Beck, chief economic adviser to the EY Item Club, said: “While the case for the MPC raising interest rates in February’s meeting is far from unambiguous, the EY Item Club expects the committee to take that step and increase Bank Rate to 0.5%.

“Granted, the Omicron variant has almost certainly left the economy weakened as a result of greater consumer hesitancy.

“But that the MPC raised Bank Rate in December regardless indicates that the committee placed less weight on the virus. And recent developments are likely to reinforce this stance.”

But the Bank is still left with a difficult decision, given the hit to consumer pockets from looming energy bills and fuel price rises – which policymakers are powerless to control with rate hikes.

Governor Andrew Bailey recently told MPs there were also worrying signs that inflation pressures may last longer than first thought, with skyhigh wholesale energy prices now looking likely to last until the second half of 2023.