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Bank of England may tackle inflation with major interest rate hike

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theguardian.com

The Bank of England is considering the biggest interest rate rise in 33 years to tackle soaring inflation, a move expected to cost millions of households more than £30bn in extra mortgage costs.City investors expect Threadneedle Street to raise interest rates by at least 0.5 percentage points, or even 0.75 percentage points, on Thursday at the next meeting of its monetary policy committee (MPC).In a development heaping renewed pressure on borrowers, a rise from the current level of 1.75% would aim to underscore the central bank’s commitment to tackling inflation, which is at its highest levels since the early 1980s.Trading in financial markets reflects an 80% probability of a 0.75 percentage point increase, which would mark the biggest single rate increase since 1989, when inflation was soaring during a consumer boom before the onset of the early 1990s recession.However, experts said the Bank pushing ahead with the biggest rate hike for more than three decades would mean an extra £3.1bn of interest payments for borrowers on standard variable rate and tracker mortgages.Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “For anyone who is already struggling with runaway price rises, the extra cost of the mortgage could be the final straw.”The investment firm said three-quarters of mortgage holders are on fixed rates, meaning they would not see an immediate impact, but that more than two million borrowers are on standard variable rates or trackers.“While anyone with a fixed rate is currently protected, all these rate rises will be adding up and hit them in one fell swoop when it’s time to remortgage,” said Coles. “If you have less than six months left to run on your mortgage deal, it makes sense to

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