Bank of England expected to hike interest rate again after inflation increase

Financial markets are bracing for the Bank of England's decision. Credit: PA

Financial markets expect the Bank of England to hike interest rates for the 11th time in a row today, after a surprise jump in UK inflation last month.

Economists are pencilling in a rise to 4.25% from 4%, with the case for an increase strengthened by official figures on Wednesday revealing a surge in inflation to 10.4% last month.

Inflation rose from 10.1% in January, as households grappled with soaring energy bills and the wider cost of living crisis.

The Bank's decision, expected midday Thursday, will be closely watched by homeowners, who have weathered repeated interest rates hikes in recent months, driving up mortgage repayment bills for many.

US and UK markets started Wednesday trading slightly on the backfoot amid investor nervousness, and ahead of major rates decisions on both sides of the Atlantic.

The central banks - America's Federal Reserve and the Bank - were under pressure to strike the right balance between fighting inflation and maintaining stability in the fraught banking sector.

America's Federal Reserve raised interest rates by a quarter-point on Wednesday, bowing to market expectations that it would temper its aggressive program of rate hikes amid a still-brewing banking crisis.

The Fed lifted rates to a range of 4.75% to 5%, its ninth-straight increase since March 2022.

Analysts had earlier predicted that the Fed was planning to resume last year’s full-throttle rate-hiking campaign after slowing down in February.

A crowd forms outside of an entrance to Silicon Valley Bank in Santa Clara on following news of the collapse. Credit: AP

But the collapse of Silicon Valley Bank has forced its monetary policymakers to take a step back, amid a climate of investor nervousness.

The recent collapse of the regional bank, alongside Signature Bank, has thrown the Fed's monetary policy decisions further into the spotlight.

Central banks are moving to calm global markets, including the UK's, in the wake of the banks' failures, and the rescue of struggling bank Credit Suisse.

London's FTSE 100 had a bumpy start to the day on Wednesday too, as investors on both sides of the pond braced for central banks' decisions.

But the blue-chip index managed to make gains in the afternoon, led by retailers like Ocado and B&M, and natural resources share prices.

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Sushil Wadhwani, a former member of the Bank's Monetary Policy, told ITV News he would raise interest rates by "25 basis points" to help tame inflation.

"Obviously, there is more uncertainty because of banking sector difficulties in the United States," he said.

"But if that settles down then it’s not implausible that the Bank [of England] will ultimately have to take rates to about 5%."

Mr Wadhwani added: "I would be almost equally confident that they will pause before [reaching 5%] but that the pause will turn out to be premature."