Bank of England warns inflation will hit 11% – but still votes against a bigger interest rate hike Business

Brokers said they were prepared for a “steady stream of rate hikes” in the market despite the Bank’s conservative decision on its base rate.

Just a year ago, the Bank expected inflation to peak at around 3%, but soaring prices shocked central bankers who thought they had firmly brought the costs of the economy under control over the past 30 last years.

As inflation squeezes household finances, growth evaporates, hinting at stagflation, the scourge that ravaged economies in the 1970s.

The Bank now expects GDP to contract by 0.3pc in the three months to June. He had previously thought the economy would continue to grow and only reverse in the final months of the year when energy bills rise again. A recession requires at least two consecutive quarters of economic decline.

The Bank’s reluctance to follow rising US rates more closely reflects concerns that rising borrowing costs will squeeze indebted families and businesses and accelerate the decline.

Despite its repeated underestimations of inflation, the MPC said it now expects the consumer price index to be “slightly above the 2% target in two years’ time. , largely reflecting the diminishing influence of external factors, and that it is well below the target in three years’ time. years, mainly reflecting lower domestic pressures.

Mr Sunak’s latest support package for families facing higher energy bills will add another 0.1 percentage point to inflation, the bank said.

Paul Dales of Capital Economics, who had predicted a 0.5 percentage point rise, said the Bank was “putting too much weight on the slowing economy and not enough on soaring inflation”.

Karen Ward, chief market strategist at JP Morgan Asset Management, said the Bank could have sent a stronger signal that it “didn’t slow inflation” by raising rates faster. “It’s possible that by acting cautiously today, he may have to do more later,” she said.

Financial market traders expect the Bank to accelerate rate hikes over the summer, taking the base rate to 2.25% by September as the need for action grows even more acute.