LONDON: The Bank of England (BoE) is widely expected to hike its key interest rate on Thursday (Nov 3) by the biggest amount since 1989 as it bids to cool sky-high British inflation.
Following a regular meeting, the BoE is expected to lift borrowing costs by 0.75 percentage points to 3 per cent, according to market consensus, which would be the highest level since the 2008 global financial crisis.
Some analysts, however, are predicting a rise of one percentage point, also a 33-year high.
The move would mirror aggressive rate-tightening by central banks worldwide as economies battle the highest prices in decades.
Ahead of the UK decision, the London stock market opened sharply lower after the US Federal Reserve sprang a fourth consecutive hike of 0.75 percentage points – and its boss Jerome Powell suggested they would go higher than expected.
The BoE rate call, due at 1200 GMT (8pm, Singapore time), is set to worsen a cost-of-living crisis for millions of Britons as hikes by central banks see retail lenders push up interest rates on their own loans.
“The Bank of England will likely join the Fed in raising rates by 75 basis points,” said Oanda analyst Craig Erlam.
“The central bank has had the unenviable job of fighting soaring inflation amid enormous economic and political uncertainty.”
Repayments on UK mortgages have surged in recent weeks also after the debt-fuelled budget of previous British prime minister Liz Truss spooked markets, forcing her to resign and triggering emergency buying of UK government bonds by the BoE.
Her successor Rishi Sunak has attempted to bring calm to markets by hinting at tax rises in a fresh budget on Nov 17, even if such a move further harms Britain’s economy.
“I think everyone knows we do face a challenging economic outlook and difficult decisions will need to be made,” Sunak, a former UK finance minister, told parliament on Wednesday.
British annual inflation stands above 10 per cent, the highest level in 40 years, on soaring food prices and energy bills.
The BoE will also give its latest inflation and growth forecasts, with analysts indicating that the UK economy may already be in recession.
“The Bank of England is expected to hike its interest rate by no more than 75 basis points, on conviction that the Sunak government would opt for some fiscal austerity, and nothing too crazy to wreak havoc, again,” forecast Swissquote analyst Ipek Ozkardeskaya.
As the COVID-19 pandemic began in early 2020, the BoE slashed its key interest rate to a record-low 0.1 per cent and also pumped massive sums of new cash into the economy.
The Bank of England started raising rates last December and another hike Thursday would be the eighth increase in a row.
Ruth Gregory, senior UK economist at Capital Economics, predicts that the BoE will raise its interest rate by one percentage point on Thursday and by the same amount in December.
“If we are right that domestic inflation will be sticky, it may mean that the Bank of England ultimately has to act more aggressively further ahead,” she added.