Interest rates could hit 4.25% as Bank of England ‘has further to go’ to fight inflation | Personal Finance | Finance

Financial analysts are sounding the alarm the Bank of England has “further to go” when it comes to the UK’s base rate. Some expect interest rates to rise by 25 basis points in the coming weeks as inflation continues to be a persistent issue.

Currently, the base rate is sitting at four percent and could reach 4.25 percent if a 25 basis point increase is applied.

Interest rates have risen over the past year in response to the Bank of England’s attempts to control inflation which is at 10.1 percent.

Recent research from the central bank’s Decision Maker Panel suggests that business leaders have renewed confidence in the UK economy.

However, experts are not ruling out further interest rate hikes in the immediate future for the time being.

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James Smith, ING’s Developed Markets’ economist, warned that Britons should expect further changes to the base rate this month.

Mr Smith explained: “Is there enough here to cast doubt over a March rate hike? We don’t think so.

“Despite a surprise downward move in core services inflation last month, the latest wage data probably suggests the Bank has a little further to go on rate rises.

“But if the trends displayed in this latest survey continue over the next couple of months, then our base case is that the March rate hike will be the last.”


The finance expert highlighted that increases to interest rates could continue up until May but acknowledges that some estimates are off the mark.

He added: “We don’t rule out a final 25 basis point hike in May if the inflation data prove more persistent than expected between now and then.

“But markets are pricing a further 70 to 80 basis points of tightening by the summer, which we think looks excessive.”

According to the Bank of England’s latest Decision Maker Panel, there is evidence that price pressures on businesses are easing.

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This is a survey of chief financial officers across the UK which factors heavily into the policymaking process.

As it stands, companies now forecast price growth to average 5.4 percent over the next year, down from a peak of 6.7 percent in the summer of 2022.

Similar predictions are being made by the firms about unit cost growth and Consumer Price Index (CPI) inflation expectations.

On the Bank of England’s panel, Mr Smith noted that CFOs believe wage growth in the UK is peaking.

He said: “The survey shows that firms expect wage growth of 5.7 percent over the next year, down from 6.3 percent in December.

“Time will tell whether this feeds into the official regular pay data, which has continued to run hot – something Governor Bailey remarked upon in a speech.

“One caveat to the generally positive story in the latest survey was that recruitment difficulties worsened last month.

“It is a reminder that structural worker shortages remain an issue. While wage growth is probably at, or close to, its peak, this suggests any decline will be pretty gradual.”

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