Interest rates set to hit 13-year high – HSBC

Developments in official wage and unemployment figures, together with a significant rise in inflation revealed today, have prompted HSBC analysts to predict that, by summer, the UK will face at its highest base rate since early 2009 – around 1.25% by August. .

HSBC predicted that interest rates would rise from the current 0.5% to 0.75% in March, then to 1% in May and finally to 1.25% in August.

Capital Economics predicted things would go even further and rates could then hit 2% next year.

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“The unemployment rate has fallen to pre-COVID levels, vacancies are at an all-time high and wage growth is picking up,” said UK chief economist Paul Dales. “That’s a recipe for more interest rate hikes.”

The Bank of England has already raised rates twice in recent weeks to keep up with inflation, from 0.1% to 0.25% in December, and to 0.5% this month.

In statistics released today (16 February), consumer prices rose at an annual rate of 5.5% in January 2022 – an increase from 5.4% the previous month and significantly above the figure for 0.7% recorded in January last year. Prices last accelerated rapidly in March 1992.

Bank officials believe further hikes are likely as energy bills and prices of essential goods rise.

In a separate report, it said unemployment fell back below pre-pandemic levels at 3.9% in December, while wages rose 6.3% in January.

An estimated 1.3 million vacancies have been registered, with many companies raising wages to secure staff.

Earlier this month, Bank Governor Andrew Bailey drew criticism from unions and Downing Street when he said workers should rein in wage demands or risk a wage price spiral that could push inflation spiraling out of control and derailing the economy, This is Money reported.

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