19 August 2022 - Market foresees far higher rates

Following this week’s publication of inflation data for July, there is a view growing among analysts that the Bank of England may be forced to raise interest rates to a level above 3% to bring rising prices back under control. It is expected that at its next meeting, the Central bank will add another fifty basis points to bring the base rate to 2.25%, with another two further fifty basis point hikes to follow. Such a move will certainly contribute to a recession which Governor Andrew Bailey has predicted will arrive in the fourth quarter and could last through the whole of 2023. If inflation can be brought under control, the bank may be able to begin to lower rates to provide a degree of support for the economy by the third quarter of next year. With the Conservative party leadership contest to be completed in a little over two weeks, the current underdog, Rishi Sunak, who has trailed in the polls since the race was reduced to two contenders, still believes he can become Prime Minister on September 5th.