Bank of England is under pressure to take more aggressive action on rate decisions

Bank of England will likely raise interest rates on Thursday by a quarter-point to 4.75 percent, as calls to take more aggressive action against persistently high inflation increase.

According to data released on Wednesday that was worse than expected, headline inflation remained at 8.7% in May. Core inflation, which excludes volatile energy and food prices, rose to 7.1%, the highest since 1992.

Some economists thought the inflation numbers were so bad, the BoE could surprise us with a 0.5 percent increase at their midday announcement. Or they might signal that a big move is coming at the next Monetary Policy Committee in August.

Allan Monks of JPMorgan said that the BoE’s two latest inflation figures left him feeling “strongly” that the MPC would be wise to act by raising 0.5 percentage points in the next week.

He said that the MPC will probably continue with the smaller increase “purely because the BoE did not provide any signal, no guidance, on this issue”.

Financial markets are now predicting that interest rates will hit 6 percent by the end the year, increasing the cost of mortgages. Ministers are preparing for a backlash from core Conservative voters before the next election.

Rishi Sunak will tell the nation on Thursday that it is his “deep moral responsibility” as prime minister to combat inflation. He will argue that any delay will only make things worse.

He will state that “our number one priority this year is to reduce inflation by half and return to our target of 2%.” “I’m confident we can achieve this goal if we keep our nerve.”

A survey conducted by StepChange (a debt relief charity) before the recent concerns about mortgage rates found that almost half of all mortgage owners had difficulty paying bills and servicing their debts over the last few months.

Labour called for the government on Wednesday night to force lenders to assist struggling borrowers.

Support could be provided by extending the mortgage term or allowing a temporary switch to only interest payments.

The Conservatives claim that the Financial Conduct Authority already requires banks to assist customers who are having difficulty paying their home loan.

The pledge made by the Prime Minister in January to reduce inflation to half has been harder to achieve after Wednesday’s numbers. In order to achieve a 5.8% inflation rate in the fourth quarter, the monthly rate would have to be reduced from 0.7% in May to 0.3% for the following six months.

Virgin Money, TSB, and NatWest are among the lenders who announced higher interest rates for fixed-rate mortgages on Wednesday.

Moneyfacts, a finance website, reports that the average rate on two-year fixed rates was 6.15 percent just before the inflation announcement. It was 5.98 percent on Friday.

Jeremy Hunt, the chancellor met MoneySavingExpert’s founder Martin Lewis in order to discuss rising rates of mortgages. Lewis stated this week that a “ticking bomb” that he warned about has now “exploded”.

Hunt’s hopes to win the 2024 elections on the basis of tax cuts have been undermined by the combination of high inflation, rising rates of interest and increasing costs of servicing the government debt.