Interest rates hit their highest level in 13 years this summer before climbing to 2% next year
Households were warned last night that interest rates would hit their highest level in over 13 years this summer.
While official figures showed falling wages and unemployment, HSBC analysts said they expected rates to hit 1.25% in August.
This would be the highest level since the start of 2009 and would drive up the cost of mortgages for millions of families.
Hikes: The Bank of England has raised interest rates twice in recent weeks – from 0.1% to 0.25% in December and then to 0.5% this month – as it intensifies its fight against inflation
The Bank of England has raised interest rates twice in recent weeks – from 0.1% to 0.25% in December and then to 0.5% this month – as it steps up its fight against inflation.
Inflation hit a 30-year high of 5.4% in December and Bank officials now estimate it will hit 7% in April as energy bills soar alongside commodity prices necessity, from food to fuel.
The Office for National Statistics will release inflation figures for January today.
In a separate report yesterday, he said unemployment fell back below pre-pandemic levels to 3.9% in December, while wages rose 6.3% in January.
There is also a record 1.3 million job vacancies as many companies need to raise wages to secure staff, fueling fears of a ‘wage and price spiral’ that could push inflation out of the way. control and derail the economy.
HSBC now expects interest rates to rise again in March, May and August, taking them from 0.5% to 0.75%, then 1%, then 1.25%.
Capital Economics said rates could then hit 2% next year.
Paul Dales, chief UK economist at Capital Economics, said: “The unemployment rate has fallen to pre-Covid levels, vacancies are at an all-time high and wage growth is picking up.
“That’s a recipe for more interest rate hikes, maybe 0.5% now to 1.25% this year and 2% next year.”
Bank Governor Andrew Bailey drew criticism from unions and a snub from Downing Street this month when he said workers should rein in wage demands or risk a spiral of wage inflation.