Bank of England to hoist rates to highest level since 2009

Interest rates in the UK will climb to the highest level since the immediate aftermath of the financial crisis by the end of the year, City traders are betting.

The Bank will reinforce its sharp policy shift to zeroing in on rampant inflation at its meeting of rate setters this Thursday after it hiked rates for the first time in over three years in December.

This week’s hike would mark the first time the Bank has hoisted rates at back-to-back meetings for the first time since 2004, beginning a cycle of rapid rate rises this year to get a handle of the soaring cost of living.

Around one in three investors think the Bank will lift rates to 1.5 per cent by the end of the year, the highest level since January 2009.

Threadneedle Street’s policy pivot from focusing on supporting the British economy though the pandemic to clamping down on a worsening inflation crunch marks the Bank “turning the page” on ultra-stimulative measures, according to Sanjay Raja, senior economist at Deutsche Bank.

Latest figures from the Office for National Statistics reveal that inflation has never been further away from the Bank’s two per cent target, hitting 5.4 per cent in December, the highest rate in nearly 30 years.

Inflation is expected to peak above seven per cent in April, led higher by the energy regulator hoisting the cap on energy bills by as much as 50 per cent, igniting a flurry of City economists to predict a strong hawkish tilt from the Bank this year.

The world’s top central banks are preparing to launch a rapid cycle of rate hikes and balance sheet shrinkage to wean the global financial system off the wave of cheap money unleashed during the pandemic.

Across the pond, the US Federal Reserve set out its intent to get on top of inflation – running at seven per cent in America, the highest rate since the 1980s – at its meeting of policymakers this week.

Fed Chair Jerome Powell has told financial markets to buckle in for a rate hike spree in 2022, starting at the world’s most influential central bank’s next meeting in March.