Bank of England set to raise interest rates TODAY amid inflation fears

Families face MORE cost of living pain with Bank of England set to raise interest rates TODAY despite fears it will not contain rampant inflation

  • Bank of England is announcing the latest decision on interest rates later today
  • Base rate expected to be lifted amid fears inflation is spiralling out of control
  • Concerns that economy is already stalling as Ukraine standoff causes chaos 

Families are facing more pain as the Bank of England is set to raise interest rates again today despite fears it will not contain rampant inflation.

The latest decision by the Monetary Policy Committee will be announced at noon amid mounting alarm at the impact of the Ukraine war.  

An increase in the base rate from its current level of 0.5 per cent is seen as inevitable by economists, with warnings that inflation could sail past the Bank’s prediction of a 7.25 per cent peak.

Some believe price rises could even reach double-digits this Spring as the standoff with Russia sends fuel and energy costs rocketing. 

However, while the Bank’s main remit is to control inflation, the global nature of the problems means the lever of interest rates might only have a marginal effect.

UK plc is already expected to suffer a severe slowdown with anxiety that it could even slip into recession amid soaring prices – the dreaded ‘stagflation’ scenario. 

Bank of England governor Andrew Bailey is facing a difficult balancing act in the latest interest rate decision today

Rates are at historically low levels but are widely expected to increase again today

Wages have been struggling to keep pace with soaring inflation over recent months

The Bank has already hiked rates twice in the past three months, with the latest quarter point rise in early February accompanied by warnings of more to come.

But Russia’s invasion of Ukraine has seen financial markets trim their expectations for rate rises this year, with central banks in the UK and worldwide predicted to tread more carefully.

Most economists still expect the Bank to raise rates to 0.75 per cent at this month’s meeting, with the case for an increase reinforced after official data on Tuesday showed a roaring UK jobs market.

It is thought unlikely, however, to vote for a larger rise or follow with a rapid fire of increases as it faces the prospect of a slowing economy.

There are fears growth may come under pressure in the second quarter and beyond as the cost of living crisis and conflict in Ukraine weigh on confidence.

Susannah Streeter, senior investment and markets analyst, said: ‘The double whammy is that these super high prices affecting oil, metals and grains may be hard to bear for companies and consumers, leading to less spending and investment and could push the recovery into reverse.’

She added: ‘Steering inflation back to the target of 2 per cent is still set to be its priority and it’s still highly likely a rate rise will be on the cards next week.

‘But given the escalating situation, with fresh sanctions being placed on Russian oil exports, policymakers are expected to limit the rise to 0.25 per cent… to try to dampen demand but not squeeze life out of the economy.’

Bank governor Andrew Bailey has admitted there is little monetary policy can do to influence global commodity prices, but said on raising rates in February that cost pressures ‘would be even worse’ if it did not take action.

There have been concerns that the Russia standoff could trigger a repeat of the Oil Shock in the 1970s, when inflation and interest rates spiked 

The EY Item Club believes the Bank will pause after rates reach 1 per cent this year.

Its chief economic adviser, Martin Beck, said: ‘The nature of the shock from soaring energy and commodity prices which has struck the UK economy following Russia’s invasion of Ukraine puts the MPC in a very difficult position.

‘As Governor Andrew Bailey has stressed, there is nothing UK monetary policy can do to increase the supply of gas and other commodities.

‘And changes in interest rates take 12-18 months to have their peak effect so hikes now may kick in at a point when base effects and falling energy prices mean inflation has fallen back sharply.’

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