Bank of England's super-sized rate increase to come a day before mini-budget

Bank of England’s super-sized rate increase to come a day before mini-budget

The Bank of England (BoE) will hold its Monetary Policy Committee (MPC) meeting later this week, where members will decide on the latest expected interest rate increase. The meeting was initially scheduled for last week but was delayed by seven days as a mark of respect following the death of the Queen. However, the new schedule means that the Bank of England will announce the almost certain rate increase just a day before a mini-budget from the new Chancellor, Kwasi Kwarteng.

According to economists, the MPC will increase the base rate by at least 50 basis points. Some believe the bank could go even further and increase the rate by 75 basis points, putting even more pressure on millions of struggling households with variable rate loans.

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According to officials, this move could pit the BoE against the new PM and the Chancellor, who have been taking steps to try and ease the financial burden for millions. While the government will announce measures that could support vast numbers of people facing financial struggles, such a move from the MPC would significantly increase borrowing costs.


Storm brewing for the UK economy

Despite the storm brewing for the UK economy, the central bank is widely expected to continue its aggressive monetary policy tightening measures. If the rate increases are as predicted, the base rate will rise to 2.25% or 2.5% from its current level of 1.75%.

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Another central bank, the US Federal Reserve, is likely to increase interest rates sharply the day before the MPC meeting. This comes after a recent report showed just how serious inflationary issues were in the world’s biggest economy. Some believe the BoE does not want to be in a similar situation, hence the continued aggressive rate hikes.

Data shows a slight drop in inflation in August, dipping to 9.9% from 10.1% in July. However, it is still close to its highest level since 1982 and stands at nearly five times the government’s target.

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Economists have also said that Liz Truss’s support measures, which the government will announce on Friday, could lower the peak of inflation and reduce the risk of a severe recession. However, it could also put further pressure on the Bank of England to continue hiking rates due to the inflationary impact of these measures.