Bank of England may have to raise rates to 5% this summer, says Goldman Sachs
The Bank of England could be forced to raise interest rates to 5% this summer, Goldman Sachs has warned, as Britain struggles to bring down the highest rates of inflation among the G7 group of advanced economies.
Threadneedle Street is widely expected to increase the cost of borrowing for households and businesses on Thursday for a 12th time in succession, with financial markets anticipating a quarter-point rise to 4.5%.
However, the US investment bank warned that households and businesses could face further increases in the cost of borrowing as the central bank struggles to bring down the highest rates of inflation in 40 years to more sustainable levels.
It comes with inflation stuck in double digits after falling by less-than-expected in March, standing at 10.1%, as British households grappled with the fastest annual rise in food and drink prices since 1977.
Inflation sticking at higher levels than expected would maintain pressure on households amid the cost of living crisis and could prove embarrassing for the government, after Rishi Sunak’s pledge to halve the rate of inflation this year. The inflation rate stood at 10.7% when he made the promise.
Goldman said that although UK inflation was on track to fall rapidly, helped by cooling global energy prices, the measure for the rising cost of living was unlikely to drop enough to meet the Bank’s 2% target set by the government.
Ibrahim Quadri, an economist at the US investment bank, said: “While it is possible that the [Bank’s rate-setting] monetary policy committee might want to slow the hiking to a quarterly pace after the May meeting, we remain sceptical that this will be feasible amid ongoing inflationary pressures.
“We therefore expect the monetary policy committee to
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