United Kingdom

Think tank says Bank of England may need to raise rates to 5%

The National Institute of Economic and Social Research says a higher Bank Rate may be needed to tackle inflation, adding pressure on borrowers and public finances.

Photo: LBC

What happened

The Bank of England raised Bank Rate to 4% on 5 November, a quarter-point rise and its first increase in more than three years. FactIQ+2 The National Institute of Economic and Social Research said interest rates may need to rise as high as 5% to control inflation. Upside+2 The think tank said monetary and fiscal policy decisions were being deferred, which it warned risks worsening inflation and squeezing public finances. Upside+1 Its new forecasts put CPI inflation peaking at around 4.4% in February, up from the 3.8% peak it predicted in July. Upside+1

Around it

The think tank expects the Bank to raise rates once more, but argues that would not be enough, leaving inflation unlikely to return to the 2% target until late 2030. Upside+1 Eight members of the Bank's Monetary Policy Committee backed the quarter-point rise, while one pushed for a full half-point increase. fourfifty.co.uk Deputy Governor Clare Lombardelli said interest rates are likely to go up again and did not rule out a further move in December. detroitnews.com The think tank said fiscal headroom shrank to £14.5 billion from £23.6 billion at the autumn Budget, and fiscal rules could be breached by about £30 billion if public finance plans fall short. Upside

What comes next

Economists expect another Bank of England rate increase early next year. fourfifty.co.uk

Sources

  1. FactIQBank of England raises Bank Rate to 4.00% on 5 November, first hike in over three years · FactIQ (opens in a new tab)
  2. UpsideUK interest rates could rise to 5%, think tank warns amid 4.4% inflat… (opens in a new tab)
  3. LBCInterest rates should rise to 5% to control inflation, says think tank (opens in a new tab)
  4. fourfifty.co.ukCosts of borrowing up | (opens in a new tab)
  5. detroitnews.comOfficials from major central banks signal more rate increases (opens in a new tab)

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