Markets bet interest rates will double by end of 2022

Markets are betting on the Bank of England doubling interest rates by the end of 2022 as investors brace for the biggest increase in 27 years at this week’s meeting.

Officials on Threadneedle Street are expected to vote for a rare 0.5 percentage point increase to interest rates on Thursday as the Bank comes under pressure from Conservative MPs to tackle rampant inflation.

Worse-than-expected inflation figures and strong signals from Governor Andrew Bailey have emboldened traders to bet on the Bank boosting rates to 1.75pc at Thursday’s meeting, movements on UK rates markets suggest. The sixth back-to-back increase will raise rates to their highest level since early 2009, pushing up mortgage rates for millions of homeowners.

Investors are now bracing for interest rates to surge above 2.5pc by the end of 2022, up from 1.25pc currently. The last time the Bank made such a big increase in interest rates at a meeting was in 1995, before its independence two years later.

Steffan Ball, an economist at Goldman Sachs, said: “Given the strong inflation data and likely sizeable upward revision to the Bank of England’s growth forecast, we expect all monetary Policy Committee members to vote for a 50 basis point hike next Thursday.”

He said “strong and broad-based” wage and price pressures and a “resilient” economic outlook will mean the Bank takes interest rates “into contractionary territory”.

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