UK Braces for Higher Interest Rates as Risk of Inflation Grows

Yields on British government bonds are higher than when Ms. Truss was prime minister in September and October. Her tax-cutting, free markets agenda spooked markets and caused bond yields to surge, roiling the mortgage market and pensions industry. Yields on two-year bonds, which are heavily influenced by changes in the central bank’s rate, rose about 0.2 points to 4.8 percent on Tuesday morning, the highest since 2008.

During Ms. Truss’s premiership, yields this high reflected concerns about Britain’s fiscal responsibility. Now they point to worries that inflation will be stubborn and that the central bank will have to raise rates and keep them there for longer than previously expected.

The expectations of higher rates are, again, causing turmoil in the home loan market as some lenders pull offers for new mortgage deals.

Jonathan Haskel, a member of the Bank of England’s rate-setting committee, wrote in a newspaper column on Monday that “further increases in interest rates cannot be ruled out.”

“As difficult as our current circumstances are, embedded inflation would be worse,” he added.

Late last month, economists at Goldman Sachs said they expected the Bank of England to raise rates to 5.25 percent, which would be the highest since February 2008.

On Tuesday, Ibrahim Quadri, a Goldman analyst, wrote in a note that he remained concerned that wage growth in Britain would settle at a level that would be inconsistent with the central bank’s meeting its target of 2 percent inflation.

What Next?

Recent Articles

Leave a Reply

You must be Logged in to post comment.