It is understood that the Bank of England will increase interest rates once again starting next week.
Nine members of the Monetary Policy Committee will meet up to decide whether they should push up the amount that millions of mortgage holders will have to pay to their bank each month. It means that the Bank's base interest rate may increase from 3 per cent to 3.5 per cent in December - the highest rate in 14 years.
Despite this, the 0.5 percentage increase may indicate a slight calming period in rate increases following the decision to raise it by 0.75 percentage points last month which signified the highest single increase since 1989. However, it will also be the ninth time in a row that the interest rates have been hiked up.
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Economists at Deutsche Bank said they expect the increase to 3.5 per cent to happen at the meeting on Thursday, December 15. "Some good news around softening inflation expectations and easing recruitment difficulties will allow the MPC to slow the pace of tightening, avoiding a second consecutive 75bps (basis point) hike,” they said.
They added: "But the Bank isn’t out of the woods just yet. Persistent inflationary pressures alongside lingering labour market tightness should result in another ‘forceful’ hike.”
Deutsche Bank also suggested that rates could go as high as 4.5 per cent next year, a decrease from the Bank's own prediction of 5.25 per cent which was suggested last month. ING’s James Smith, Antoine Bouvet and Chris Turner said in a note to investors that the rate could peak at 4 per cent next year.
He said: “When the Bank of England hiked by 75 basis points for the first time back in November, it seemed obvious that it would be a one-off move. The forecasts released back then suggested that keeping rates at 3 per cent would see inflation overshoot (just) in two years, while raising them to 5 per cent would see an undershoot.
“In other words, we should expect something somewhere in the middle, and that’s why we think Bank Rate is likely to peak at 4 per cent early next year.”
They predicted that interest rate hikes could stop in February but suggested that continued wage pressures in the labour market mean the Bank could be “less swift to cut rates than the US Federal Reserve”.
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