The Bank of England poised to raise interest rates amidst soaring inflation

The Bank of England is gearing up for yet another interest rate hike. Anticipations are high that during its upcoming meeting, the bank will announce its 14th consecutive rate increase.

The Bank of England looks likely to raise rates by a quarter-point to 5.25% on Aug. 3, though economists and markets see a risk of a repeat of June’s surprise half-point hike as inflation remains hotter than in other big economies.

Both the U.S. Federal Reserve and the European Central Bank increased interest rates by a quarter of a percentage point this week, but unlike the BoE, markets think they are at or near the end of their rate-tightening cycle.

In contrast, bets on where BoE rates will peak have swung sharply since the central bank’s last rate move on June 22 as investors try to work out if Britain has a deep-rooted inflation problem, or if rapid price growth is on the cusp of the sharp slowdown seen elsewhere.

“Where rates go after August will depend on the extent to which second-round effects persist,” said Andrew Goodwin, chief UK economist at Oxford Economics, referring to the knock-on impact on wages and prices of last year’s surge in energy costs.

Expectations for peak BoE rates reached 6.5% on July 11 after data showed record wage growth. But they fell back after a bigger-than-expected decline in consumer price inflation. Investors are now split fairly evenly between a peak of 5.75% or 6% late this year or early in 2024.

The surge in rate expectations has pushed mortgage costs to their highest since 2008, and higher rates are weighing on house-building and some other sectors. A survey on Monday showed private-sector growth had fallen to a six-month low this month.