Interest rates set to hit 1% to curb soaring inflation | City & Business | Finance

Bank policymakers, led by Governor Andrew Bailey, are expected to agree on a cut from 0.75% to 1% on Thursday. Inflation hit a 30-year high of 7% in March and continues to soar. It is expected to reach nine percent or even double digits by the fall. Households are suffering from a bill nightmare, made worse by the war in Ukraine.

The Monetary Policy Committee (MPC) has already raised interest rates in each of its last three meetings to levels not seen since early 2009.

The cost crisis is expected to tighten further in October when the energy price cap is revised again.

It soared 54% to £1,971 in April, meaning millions of households on standard or variable rates need to find an extra £693 a year. As the country tightens its belt, UK growth is sure to suffer and the Bank is likely to cut its outlook for the economy too on Thursday.

Investec economists said: “The UK is in the throes of a cost of living crisis.

“Coupled with tax hikes, this leaves a road strewn with pitfalls. »

They expect a recession to be averted, largely thanks to savings accumulated by households during the pandemic, but said slowing growth and escalating inflation “leave the MPC at an impasse”.

Investec is considering another rate hike in August to 1.25%.

But he thinks the Bank will take a break after that “to assess the extent of the effect of the real income squeeze on activity”.

Investec then plans two more rate hikes in 2023. Growth already began to falter in February as the bill horror sets in. The figures show an expansion of just 0.1%, compared to 0.8% in January.

The Bank said last month that it estimated growth would come in at around 0.75% in the first quarter, up from previous expectations of a stable gross domestic product. He also found that the labor market held up well.

But many experts see GDP stagnating in the second quarter as consumer confidence weakens amid mounting price pressures.

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