The Bank of England will raise borrowing costs 50 basis points higher than was thought only two weeks ago, in two quarter-point moves, as elevated inflation proves tricker to bring down than had been expected, according to economists polled by Reuters.
Last week, the central bank surprised investors by raising interest rates half a percentage point, taking Bank Rate to 5.00%, and said there had been “significant” news suggesting persistently high inflation in Britain would take longer to fall.
Mortgage rates have already shot up, meaning the 800,000 borrowers who still need to refinance this year, and a further 1.6 million homeowners next year, face much higher repayments.
Bank Rate is now expected to peak at 5.50% next quarter following 25 basis point hikes at the BoE’s August and September meetings, medians in the poll taken after the Bank’s Thursday move showed.
In a June 14 poll, policymakers were expected to draw a halt at 5.00% next quarter.
“Something has definitely shifted. It’s quite hard to reconcile what they said in May with their decision in June so I think they are losing confidence and patience in their models,” said James Smith, developed markets economist at ING.
“Are they going to be happy with just one more 25 basis points in August? I suspect not, which is why we have 25 for August and 25 for September and they could even do more.”
A cut in borrowing costs was not expected until the second quarter of next year.
Stubborn inflation defied predictions of a slowdown and held at 8.7% in May, official data showed the day before the BoE’s decision, and the previous poll suggested it wouldn’t be at the 2% target until 2025.