The Bank of England is almost certain to hike interest rates on Thursday to combat a surge in inflation driven by food prices rocketing by 18 percent. The increase, caused largely by vegetable shortages, was the worst in 45 years. It reversed a falling Consumer Prices Index, driving it to 10.4 percent from 10.1 percent in January.
It was a blow to the government which has promised to halve inflation this year and had seen a decline in prices since a CPI peak of 11.1 percent in October.
The Bank is now expected to raise the base rate to 4.25 percent from 4 percent, with some experts expecting it to go up again in May.
The 0.25 percent rise in the base rate would cost an average borrower with a typical £150,000 mortgage an extra £375 a year or £31 a month. It will affect tracker and variable rate mortgages, but will not be applied to those borrowers on fixed-rate deals.
Around 55 percent of UK mortgagees are on fixed-rate deals that expire in the next 18 months to two years. Financial markets priced in a 99 percent probability the Bank will increase interest rates.
CMC Markets chief market analyst Michael Hewson said: “The Bank is pretty much certain to raise rates now. A quarter point at the very least.”
Oliver Blackbourn, of Janus Hen-derson Investors, said markets believe rates will carry on rising after Friday, rather than peaking and falling. He said: “Markets are pricing for a 0.25 point hike with a high likelihood of a further 0.25 point in May.”
Chancellor Jeremy Hunt said: “Falling inflation isn’t inevitable,
so we need to stick to our plan to halve it this year.”
