Bank of England is likely to raise interest rates to 4.75%

The Bank of England (BoE) has signaled its intent to raise interest rates again at its forthcoming June 22 policy meeting. This would mark the agency's 13th consecutive rate hike, taking rates to 4.75%, the highest level since 2006. However, some investors predict there may be further rate hikes, possibly taking rates up to 6%, making the BoE a global outlier.

The motivation behind these proposed rate hikes is primarily due to the threat of inflation, which has persisted for a sustained period. In order to maintain price stability, it is critical to ensure that the inflation rate remains within a target range. The BoE has a mandate to keep inflation at 2%, and inflation currently stands at 2.1%.

Bank of England is likely to raise interest rates to 4.75% ph: instagram@yukatabi_85

Despite expectations that interest rates may rise as high as 6%, this is still below the level seen in previous periods of high inflation. For example, in the 1970s, the UK had to endure interest rates above 10% in order to combat severe levels of inflation.

It is worth noting that the US Federal Reserve (Fed) and the European Central Bank (ECB) are not expected to raise rates as high as the BoE. In fact, the Fed is only expected to raise rates twice in the coming months. Furthermore, the ECB, which just raised rates on June 15, is only expected to have one more rate hike in July 2023.

It appears that investors have broadly accepted the BoE's decision to raise interest rates, even if this takes rates higher than for other central banks, as it is seen as a necessary measure to control inflation. Indeed, in a recent Reuters poll, economists predicted that the BoE may raise interest rates twice more this year, taking rates as high as 5%.

Overall, it is clear that the BoE's decision to raise interest rates is aimed at ensuring that inflation remains within its target range. While higher interest rates may cause some short-term pain, it is necessary to maintain long-term price stability. Investors are expected to continue supporting the BoE's decision to raise rates, even as rates rise higher than for other central banks. It remains to be seen whether the BoE will raise rates as aggressively as predicted, but we can expect further rate hikes in the coming months if the current trend of inflation continues.