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Interest rates set to hit 5% next year as Bank steps up inflation fight

Increase: Rates have already risen from 0.1% to 2.25% since December

Interest rates will hit 5% next year as the Bank of England was forced to step up the fight against inflation after Kwasi Kwarteng’s £45bn tax cut bonanza.

Interest rates look set to hit 5 per cent next year as the Bank of England is forced to step up its fight against inflation after Kwasi Kwarteng’s £45bn tax cut bonanza.

Analysts believe rates are due to rise more than previously thought as the mini-budget boosts the economy and inflation.

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Rates have already risen from 0.1% to 2.25% since December.

Increase: Rates have already risen from 0.1% to 2.25% since December

Increase: Rates have already risen from 0.1% to 2.25% since December

And investors are betting it will hit 5.25 percent next year, its highest level since 2008. The move could even include a one percentage point hike at the next Monetary Policy Committee (MPC) meeting in November.

Jagjit Chadha, director of the National Institute for Economic and Social Research, said the mini-budget would result in a shorter recession and stronger economic growth. But he added: ‘The potential inflationary effects of this are likely to lead the Bank of England to raise rates more aggressively than we previously expected.

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“We expect it to peak at around 5 percent in the third quarter of 2023.”

Kwarteng described the Bank’s independence as ‘sacrosanct’.

Leveling Up Secretary Simon Clarke urged the Bank to step up its fight against inflation, which was 9.9 percent last month. When asked if the Bank was ‘asleep at the wheel’ last year on inflation, he said: ‘I don’t think they were.’

He told LBC Radio: “We have confidence in the MPC and obviously we want them to step up their focus on curbing inflationary pressures and we welcome the steps they are taking to do that.”

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