The Bank’s rate-setting committee is facing the task of causing more costs to borrowers in the hope that cooling the economy will bring persistent inflation down further – but will it? Can go further than expected?

A Bank of England rate hike at midday is a certainty – although opinions are divergent over how much additional pain could be imposed as efforts to contain the matter The country’s inflation was difficult.

Earlier this week, policymakers were tipped to raise the prime rate by a quarter of a percentage point to 4.75% – the 13th consecutive record increase – maintaining a slow rate hike path. more since March.

But Latest inflation figuresannounced yesterday, has prompted financial market participants to anticipate a greater chance, almost even, of a half-percentage point increase to 5%.

While there have been concerns about the rapid rate of price increases, inflationary The data came as a shock.

It shows that the pace of price growth is getting more and more ingrained in the economy while the main consumer price index (CPI) has also not dropped lower as most experts had predicted.

The bank has also previously expressed concern about the pace of wage growth, which, it argued, contributes to further demand and inflation.

Inflation is proving harder to cool than anticipated, and Prime Minister Jeremy Hunt told Sky News last month he would even comfortable with recession if it brings inflation to its heel.

The only tool the Bank has to do that, rising interest rates, will cause more pain for borrowers regardless of today’s interest rate decisions.

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Rising interest rate expectations in recent weeks have forced the cost of funding lenders up, with data from Moneyfacts this week showing Average rate for two-year fixed mortgage transactions increased above 6%.

They have continued to increase every day this week after staying just above 2.5% in March last year.

With financial markets currently seeing Bank rates likely to rise to 6% early next year, such levels, if materialized, would mean mortgage rates going even higher.

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In making its decision on interest rates today, the Monetary Policy Committee is likely to face a major split in its vote – although the majority of commentators are of the opinion that the outcome will be is a quarter point increase.

After all, the Bank has consistently steered the market away from top rate scenarios this year and even signaled that a pause in the interest rate cycle is near.

But the MPC’s core function is to keep inflation around its 2% target – and there are signs of disappointment in Whitehall that the independent Bank of England is falling behind the curve.

So at a flat 8.7% – and with wage growth and so-called core inflation (removing volatiles like energy and food) rising last month – some people can be forgiven for thinking that there is every reason to justify the 0.5 percentage point rate of wandering.

The other side of the argument suggests a smaller increase would be sufficient as there is evidence that the 12 rate hikes to date, coupled with cost-effective natural easing, are starting to work.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said broader data suggests wage growth pressures will start to ease and energy-related inflation will ease sharply, allowing for an easy price hike easier.

He said of the MPC dilemma: “The CPI inflation rate looks set to remain strong for the rest of the year, possibly down to around 4.5% in December and around 2% in the second half of the year. end of 2024.”

He added: “We continue to think the MPC will not raise Bank rates to the near 6% that the market priced ahead of today’s data; for now, our base case remains interest rates. The highest bank at 5%.”