The Bank of England has maintained the base rate of interest at 0.1 per cent, but acknowledged investors are expecting rates to rise as high as 1 per cent by the end of next year.
In a statement today (November 4), the Monetary Policy Committee (MPC) said it judged the existent stance on monetary policy “appropriate”.
There was dissent in the ranks, however, as two members voted against maintaining rates, with seven voting to keep rates as they are.
The committee said based on the projected rise of asset and energy prices, the “market-implied path” for the bank rate would see it rise to around 1 per cent by the end of 2022.
But the BoE also suggested this forecast may prove an overestimate, noting that such an outcome could cause inflation to undershoot its 2 per cent target in subsequent years.
Today's meeting also saw the MPC vote unanimously to maintain the stock of sterling non-financial investment-grade corporate bond purchases at £20m, and voted by a majority of 6-3 for the central bank to continue with its existing UK government bond purchasing rate.
This takes the target for the stock of government bond purchases to £875bn and the total target stock of asset purchases to £895bn.
The central bank expects inflation to rise to just under 4 per cent in October, which is said was accounted for “predominantly by the impact on utility bills of past strength in wholesale gas prices”.
Inflation is then expected to rise to 4.5 per cent in November, and peak at 5 per cent in April 2022.
Financial markets began to price in a rise in interest rates over the past month as Andrew Bailey began hinting at impending rate rises.
The governor firstly said at the end of September that a base rate rise before Christmas was possible, and a few weeks later saying the Bank of England will ‘have to act’ on inflation.
His comments came after inflation continued to rise in the UK, despite the central bank saying the increase in prices was transitory.
Bailey had previously blamed “base effects” for the rise inflation, which has overshot the BoE’s target of 2 per cent since May this year.
These included the reduction in prices last August as a result of the government’s “Eat Out to Help Out” scheme, as well as temporary VAT cuts.
However prices have continued to increase, with inflation hitting 3.1 per cent in September.