The Bank of England may have to raise interest rates to 4% early next year to fight rising inflation, despite rising recession risks amid a cost-of-living crisis.
The Guardian reported that traders are betting that the central bank will more than double the cost of borrowing from 1.75% in response to inflation at the highest level in more than 40 years, noting that in a development that will increase new pressure on holders mortgage loans, the bank’s base interest rate is expected to be set at 4% by May 2023, in line with the rate quoted by financial markets.
The overall base rate is expected to exceed 3% and could peak at around 4.1% in June 2023, based on interest rate derivatives tied to Threadneedle Street MPC meeting dates.
The bank is also expected to cut interest rates by about 3.8% by the end of next year amid expectations of easing inflationary pressures and a prolonged recession.
Movements in financial markets occur as mortgage lenders increase the rates they offer to borrowers. Data from data provider Moneyfacts showed that earlier this month, the average new two-year fixed-rate mortgage topped 4% for the first time since 2013.
Source: The Guardian