Bombshell inflation warning as rates could surge to 15 PERCENT next year

 

Bombshell inflation warning as rates could surge to 15 PERCENT next year

 

BRITONS have been delivered a bombshell warning inflation could surge to 15 per cent next year.

 

By SARAH O’GRADY - DAILY EXPRESS SOCIAL AFFAIRS CORRESPONDENT

22:01, Wed, Aug 3, 2022

https://www.express.co.uk/finance/personalfinance/1650140/inflation-warning-bank-of-england-interest-rates-15-per-cent-next-year-update

 

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The grim forecast was made as the Bank of England is expected to hike interest rates by the highest level in nearly three decades tomorrow (Thursday).

 

Bank of England

With inflation currently running at a 40-year high of 9.4 per cent, rate setters are predicted to announce a rise in the base rate from 1.25 per cent to 1.75 per cent as they battle to bring the cost of living down.

 

Previous BofE predictions forecast that the Consumer Prices Index measure of inflation would peak at around 11 per cent this autumn, before falling back.

 

But the Resolution Foundation think tank today warned of further misery to come on the back of rampant energy costs.

 

“It is now plausible inflation could rise to 15 per cent in the first quarter of 2023,” said Jack Leslie, senior economist at the Foundation.

 

“The outlook for inflation is highly uncertain, largely driven by unpredictable gas prices, but changes over recent months suggest that the Bank of England is likely to forecast a higher and later peak for inflation.

 

“While market prices for some core goods – including oil, corn and wheat – have fallen since their peak earlier this year, these prices haven’t yet fed through into consumer costs and remain considerably higher than they were in January.”

 

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While the prices of some global commodities, such as oil, have come off their peaks, the gas price is obliterating household budgets. Gas prices are expected to be around 50 per cent higher this winter than they were in the immediate aftermath of the Russian attack on Ukraine.

 

And the energy price cap will remain higher than £3,300 from October to at least the start of 2024, according to consultancy Cornwall Insight.

 

Economists, businesses and mortgage payers will be bracing themselves for today’s (THURS) noon announcement from the BofE’s Monetary Policy Committee. The Bank has raised rates five times since December - taking them from 0.1 per cent to 1.25 per cent - as it battles soaring inflation.

 

A more aggressive hike of 0.5 per cent to 1.75 per cent would be the sharpest increase in borrowing costs since 1995.

 

With the average UK property costing £270,708, with a 75 per cent loan-to-value, a 0.5 per cent hike means mortgage repayments will cost £196 per month more than in November last year.

 

If the BoE raises the rate by 0.25 per cent, the same mortgage repayments will have risen by £144 per month since November 2021.

 

 

And with 850,000 properties on tracker mortgages and 1.1m on Standard Variable Rates, as many as 20m homeloan payers (one in four) will have no protection against any jump. With inflation at 9.4 per cent, hardpressed homeowners are already facing rising food, fuel and energy prices.

 

Central banks usually raise rates when inflation gets out of control as, in theory, this should help keep a lid on prices by encouraging saving rather than spending. But many experts fear that overly aggressive rate increases could slam the brakes on the Covid recovery.

 

Since pandemic lockdowns ended, workers have been in high demand, leading to historically low levels of unemployment. This could now start to reverse as businesses battered by higher prices and the rising cost of borrowing look to make redundancies.

 

And, at their last meeting in June, three MPC members had already voted for further and faster base rate hikes.

 

“After a number of central banks across the world have picked up the pace of their tightening cycle, the Bank of England is starting to look like something of a laggard when it comes to raising rates,” said Luke Bartholomew, senior economist at asset manager Abrdn.

 

“We expect this impression to be somewhat corrected with the Bank hiking interest rates by half a per cent.”