Interest rates tipped to hit highest level in 13 years this summer

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Interest rates tipped to hit highest level in 13 years this summer before soaring as high as 2% next year


Households were last night warned that interest rates will hit their highest level for more than 13 years this summer.

As official figures showed wages and unemployment falling, analysts at HSBC said they expect rates to reach 1.25 per cent in August.

That would be the highest level since early 2009 and push up the cost of mortgages for millions of families.

Hikes: The Bank of England has raised interest rates twice in recent weeks - from 0.1% to 0.25% in December and then to 0.5% this month - as it steps up its battle against inflation

Hikes: The Bank of England has raised interest rates twice in recent weeks – from 0.1% to 0.25% in December and then to 0.5% this month – as it steps up its battle against inflation

The Bank of England has raised interest rates twice in recent weeks – from 0.1pc to 0.25pc in December and then to 0.5 per cent this month – as it steps up its battle against inflation.

Inflation hit a 30-year high of 5.4 per cent in December and Bank officials now believe it will top 7 per cent in April as energy bills soar alongside the price of essentials from food to fuel.

The Office for National Statistics will publish inflation figures for January today.

In a separate report yesterday, it said unemployment fell back below pre-pandemic levels to 3.9 per cent in December while pay rose by 6.3 per cent in January. 

There are also a record 1.3m job vacancies, with many firms having to ramp up pay in order to secure staff, fuelling fears of a ‘wage-price spiral’ that could push inflation out of control and derail the economy.

HSBC is now forecasting that interest rates will rise again in March, May and August, taking them from 0.5 per cent to 0.75 per cent, then 1 per cent, and then 1.25 per cent.

Capital Economics said rates could then hit 2 per cent next year.

Paul Dales, chief UK economist at Capital Economics, said: ‘The unemployment rate has fallen to pre-Covid levels, job vacancies are at a record high and wage growth is rising.

‘That’s a recipe for more interest rate hikes, perhaps from 0.5 per cent now to 1.25 per cent this year and to 2 per cent next year.’

Bank Governor Andrew Bailey drew criticism from unions and a rebuff from Downing Street this month when he said workers should rein in pay demands or risk a wage-inflation spiral.

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