Bank of England set to raise rates to 4% in push to quell inflation

{"text":[[{"start":9.34,"text":"British households stung by high energy prices are facing a fresh squeeze as the Bank of England looks set to raise interest rates for the first time in more than three years this week, in a renewed push to quell rapidly rising inflation."}],[{"start":22.88,"text":"The central bank is expected to announce a quarter-point rise in its benchmark rate to 4 per cent on Thursday, according to four-fifths of economists polled by Reuters, with traders pricing more increases into next year."}],[{"start":34.08,"text":"“A hike appears a done deal and is fully priced in by financial markets,” said Alexander Harvey, UK economist at consultancy Oxford Economics."}],[{"start":44.36,"text":"The BoE has thus far held off raising rates in the wake of the Iran war, even as other central banks including the Federal Reserve, European Central Bank and Bank of Japan have tightened policy."}],[{"start":null,"text":"

"}],[{"start":54.64,"text":"BoE governor Andrew Bailey has warned against rushing to judgment about inflation risks, saying in October that it was “early days” when judging whether higher energy costs would feed into wages and corporate prices."}],[{"start":68.06,"text":"But UK inflation accelerated more than expected to a near one-year high of 3.5 per cent in September and is set to rise further in the coming months, putting pressure on the central bank’s Monetary Policy Committee to act."}],[{"start":80.96,"text":"The MPC last increased interest rates in summer 2023, and a rise to 4 per cent this week would return them to levels last seen in the second half of 2025."}],[{"start":91.04,"text":"The BoE will update its economic and inflation forecasts this week. But the latest figures from the Office for Budget Responsibility, released alongside chancellor John Healey’s Budget on Wednesday, pointed to a tough outlook."}],[{"start":null,"text":""}],[{"start":103.64,"text":"The independent fiscal watchdog said it expected inflation to peak at nearly 4 per cent at the start of next year — almost double the target rate — with households facing particularly sharp increases in the cost of essentials."}],[{"start":116.24,"text":"Food inflation is forecast to jump from 1.8 per cent in the third quarter this year to 5.5 per cent in the same period next year, while fuel prices are expected to rise at double-digit annual rates until the first quarter of next year."}],[{"start":130.16,"text":"If the projections bear out, UK households will have experienced prices rising by almost 40 per cent in the seven years to the first three months of 2028 — nearly four times the increase in the previous seven years."}],[{"start":142.6,"text":"Bailey warned during meetings with other central bankers in Bangkok last month that the longer energy prices stayed high, the more companies may feel compelled to raise prices, feeding inflation."}],[{"start":154.44,"text":"In a worrying sign for policymakers tasked with returning inflation to 2 per cent, UK businesses said they planned to raise prices by 4 per cent on average over the year from October, according to a BoE survey published on Friday."}],[{"start":168.766,"text":"The UK economy has proven more resilient than expected, suggesting businesses are weathering higher energy and borrowing costs better than anticipated. In the three months to August, the economy grew by an annual rate of 1.8 per cent, the fastest pace since 2022, when it was rebounding from Covid-19 lockdowns."}],[{"start":187.28,"text":"However, much of the strength was concentrated in business services, which have benefited from increased spending on AI."}],[{"start":194.28,"text":"The picture is considerably less favourable for households, which continue to grapple with the cumulative impact of years of high inflation and elevated borrowing costs."}],[{"start":null,"text":""}],[{"start":204.04,"text":"Activity in the hospitality sector fell 1 per cent in the three months to August, compared with a year earlier, and output in consumer-facing services such as bars and hairdressers remained below pre-pandemic levels."}],[{"start":217.1,"text":"Energy costs have risen globally since the outbreak of war in the Middle East, but Britain is the only G7 economy where household consumption per head has yet to recover to its level in the final quarter of 2019. The latest outlook offers little prospect of a rapid spending recovery for households."}],[{"start":234.52,"text":"According to last week’s OBR forecasts, household consumption per head will not return to its pre-pandemic peak, reached at the end of 2018, until early 2029."}],[{"start":244.84,"text":"The projections mean, in effect, a lost decade for consumer spending, which would mark a stark reversal from the 10 years to 2018, when household consumption per head rose by about 15 per cent."}],[{"start":256.2,"text":"The weakness partly reflects an exceptional squeeze on living standards. The OBR expects real household disposable income per head to increase by just 1 per cent in the decade to 2029-30, compared with a rise of 10 per cent in the decade to 2019-20."}],[{"start":null,"text":""}],[{"start":272.8,"text":"Based on market expectations that the BoE’s benchmark rate will hit 4.5 per cent at the end of its forecast period in 2031, and against the backdrop of a higher tax burden, the OBR predicted lasting pain for households."}],[{"start":286.64,"text":"Mortgage payments are expected to account for 4.3 per cent of household disposable income by 2031, the highest share since 2009 and more than double the 2 per cent recorded in 2021."}],[{"start":301.04,"text":"Borrowers are already feeling the impact of expectations of further monetary tightening. The five-year average fixed mortgage rate with 75 per cent loan-to-value rose to 4.98 per cent at the end of September, the highest since 2023, according to BoE data."}],[{"start":null,"text":""}],[{"start":319.28,"text":"Mortgage approvals also fell to their lowest level since late 2023 in September, highlighting the impact of higher borrowing costs on housing demand, BoE data showed."}],[{"start":331,"text":"Investors are pricing in between four and five quarter-point increases in interest rates by the end of next year. But many analysts highlight weakness in domestic demand and expect tensions in the Middle East to ease and energy prices to fall back from their peak before they affect domestic price pressures more deeply."}],[{"start":350.36,"text":"Paul Dales, chief UK economist at consultancy Capital Economics, said a rise in the BoE’s benchmark rate in November could provide enough insurance against the risk of higher energy prices being passed on by companies in the form of higher prices for goods and services and pushing up wages."}],[{"start":368.84,"text":"Assuming that energy prices fell back next year, any “second-round” effects would be muted, he said, meaning policymakers could start cutting rates in late 2027 and into 2028, eventually reaching 3.5 per cent."}],[{"start":382.92,"text":"“We don’t think this [upcoming vote] will mark the start of a series of rate hikes that keep rates high for a couple of years, as investors expect,” he added."}],[{"start":396.76,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1793610197_3994.mp3"}