Bank of England reportedly considering 0.5% interest rate increase

Late last month, its governor Andrew Bailey said that while an increase at this level is “not locked in”, it will be “among the choices on the table”. The bank has raised interest rates by 0.25% increments since December, pledging to act “forcefully” in June if needed in response to more persistent inflationary pressures. 

A 0.5% increase sees the central bank’s benchmark rate hit 1.75% - which will be the sharpest rise in borrowing costs for more than a quarter of a century. 

It comes after the International Monetary Fund (IMF) slashed global growth forecasts, pointing to the UK as one of the countries where the outlook for inflation had worsened the most. 

Consumer Price Index (CPI) inflation reached 9.4% in June - up from 9.1% in May, and has risen sharply over recent months, making the June figure the highest annual inflation rate since around 1982. However, with the latest surge in gas prices, new projections are likely to show it climbing even further into double digits. 

According to the Financial Times, traders are betting that interest rates will peak close to three percent early in 2023 - implying at least two more 0.5% increases by the end of the year. However, the outlet says most analysts think this is going too far, noting the BoE has repeatedly signalled that inflation would fall below its two percent target in the medium term.