On Thursday, Bank of England policymakers are expected to raise interest rates for a ninth consecutive time, to 3.5 percent from 3 percent. The half-point increase is expected to match rate changes by the Federal Reserve on Wednesday and the European Central Bank on Thursday. All three central banks are expected to decelerate from previous increases in interest rates of three-quarters of a point.
Policymakers are expected to slow the pace of rate increases as they assess the impact of months of tighter monetary policy in damping economic demand to squash inflationary pressures. In Britain, the central bank’s rising benchmark rate, which has climbed from 0.1 percent a year ago, has already led to a notable increase in mortgage rates, with millions of households facing sharp increases in payments next year, and house prices falling.
While the inflation outlook is uncertain, the Bank of England predicts that the rate of price increases will slow sharply from the middle of next year as past jumps in energy prices drop out of the annual calculations.
But the cost of high inflation won’t fall away so quickly. The British economy is likely already in a recession that the central bank predicts to last all through next year. Household finances will be under “significant pressure” from below-inflation wage gains, higher mortgage costs and an expected increase in unemployment, according to a financial stability report by the Bank of England published on Tuesday.
The Joseph Rowntree Foundation, a nonprofit, said on Wednesday that more than seven million households were “going without essentials,” which meant they had reported going hungry or skipping meals or didn’t have adequate clothing, based on a survey. Just under five million households were said to be in arrears on at least one household bill.
“I know it is tough for many right now, but it is vital that we take the tough decisions needed to tackle inflation — the No. 1 enemy that makes everyone poorer,” Jeremy Hunt, the chancellor of the Exchequer, said in a statement in response to the inflation data on Wednesday. “If we make the wrong choices now, high prices will persist and prolong the pain for millions.”
This tough stance comes as government ministers have been embroiled in debates with unions over improving pay offers following a long history of below-inflation wages. Recently a large gulf has opened up between pay growth in the private and public sectors. Before accounting for inflation, private-sector pay rose at an annual rate of 6.9 percent in the three months to October, but just 2.7 percent for workers in the public sector, data published on Tuesday showed.
Pat Cullen, the chief executive of the Royal College of Nurses, the union whose members will go on strike on Thursday and again next week, accused the government of “belligerence” as talks broke down.
