Interest rates live: Bank of England announcement looms as economists brace for fresh hike to tame inflation

Pressure on the Bank of England may ease as policymakers are expected to continue raising interest rates but an end to the extended cycle of interest rate hikes is in sight.

Experts believe the latest UK inflation data has given some relief to the central bank as it showed a more than expected slowdown in price inflation. That means interest rates – a tool used by the bank to bring inflation down to its 2 percent target – may not have to rise as high as feared.

According to economists from ING Economics and Deutsche Bank, the value could peak at around 5.75 percent this year.

“Beyond this month (August), we stand by our forecast of another rate hike in September, at which point the current cycle of rate hikes should come to an end,” predicted Andrew Goodwin, chief UK economist at Oxford Economics.

Rishi Sunak said that while inflation is not falling as fast as he would like, he believes people can “see light at the end of the tunnel”.

CPI inflation was 7.9 percent in June – down from 8.7 percent in May and the lowest rate since March 2022 – but the prime minister needs to fall to around 5 percent or less by year-end to get around that to achieve the most important promise of his government.

Mr Sunak told LBC’s Nick Ferrari: “I know families struggle with the cost of living and that is why I have made cutting inflation in half a top priority and we are making progress.”

“Is this as fast as I would like? No. Is it as fast as anyone would like? No. But the latest numbers we’ve had show we’re going in the right direction, inflation is coming down and I think people can see light at the end of the tunnel.”

Investec Economics has forecast that the Bank of England will opt for a stronger-than-expected 0.5 percentage point hike on Thursday.

However, the company believes that a final quarter-point rate hike could follow in the following month before the rate-hike cycle comes to an end.

Laith Khalaf, head of investment analysis at AJ Bell, said: “The market now expects interest rates to peak at 5.75 per cent or 6 per cent by the end of the year and as such has already scaled back bets from the peak.” Inflation panics as interest rates above 6 percent were envisaged.

“However, the bank is still walking a tightrope as it tries to contain inflation without destroying the housing market.”

In addition to its rate announcement, the Bank of England’s Monetary Policy Committee is due to issue new economic forecasts on Thursday, which will also be closely watched by economists.

The Bank of England’s forthcoming announcement likely means those with mortgages “are not out of the woods yet,” a broker said after data showed house prices fell by the sharpest drop in 14 years in July.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “With the Bank of England expecting another 25 basis point hike in interest rates later this week, we’re not over the hill on rising mortgage costs.

“However, some lenders, including HSBC, Barclays and Nationwide, have reduced their rates on fixed-rate mortgages on better-than-expected inflation news. This has calmed swap rates that support fixed-rate mortgage pricing after weeks of significant volatility.”

The price of a typical home is now 4.5 percent below its August 2022 peak, Nationwide said this week.

Robert Gardner, Nationwide’s chief economist, noted that “investor views on the likely path for UK interest rates have been volatile in recent months” and said: “There has been a slight softening in expectations in recent weeks, but longer-term interest rates underlying mortgage pricing remain elevated.

“As such, housing affordability remains tight for those looking to mortgage a home.”

Hello, and thank you for joining us on the liveblog as the Bank of England’s latest announcement on interest rates approaches.

The central bank is widely expected to hike interest rates by a further 0.25 percent on Thursday morning – marking the 14th straight rise in borrowing costs.

The rise to 5.25 percent would be the highest interest rate since February 2008.