City brings forward bets on Bank of England rate hike to this week

The Bank of England will hike interest rates this week to hose down runaway inflation, according to several grandee City investment banks.

JPMorgan, Deutsche Bank, Morgan Stanley and Santander have all brought their bets on when the Old Lady will increase borrowing costs to this Thursday’s rate setting meeting.

The strengthening bets have been driven by inflation seemingly becoming more entrenched in the UK economy than previously thought.

Soaring energy costs, compounded by ongoing supply chain snarl ups have intensified inflation in the UK, prompting the Bank’s governor, Andrew Bailey, to adopt a more hawkish tone toward price rises.

Bailey recently warned the Bank will “have to act” to rein in medium term inflation expectations, prompting a string of investment banks to ramp up their expectations for rate hikes.

The Bank’s new chief economist, Huw Pill, has also warned inflation will scale to around five per cent.

This week, the Office for Budget Responsibility (OBR) set out a pessimistic scenario in its budget forecast in which inflation climbs above five per cent. 

If this were to happen, officials on Threadneedle Street could hoist rates to 3.5 per cent, the OBR said, likely plunging the British economy into recession in the process. If the Bank did not act in this situation, inflation could run away to as high as 8.5 per cent.

Bank of America also thinks the Old Lady will increase borrowing costs by 15 basis points and end the final leg of its quantitative easing programme on Thursday.

Several of Britain’s biggest mortgage lenders have raised rates on their products in anticipation of the Old Lady swelling borrowing costs this week. 

Higher mortgage bills are set to add to the cost of living crisis, triggered by soaring inflation and looming tax hikes, that is eating into Brits’ living standards.