Do we stick or twist in the interest rates conundrum?

Inflation is becoming increasingly hard to ignore.

- ANNA ISAAC

From central bankers to ordinary consumers grimacing at their energy bills, the pace at which prices are rising has become a pressing concern. Investors are worried too.

Financial markets are betting that the key Bank of England interest rate could rise to 1 per cent by the end of 2022, the highest rate in more than a decade, starting with a small 0.15 percentage point rise this coming December. But this is set against an uncertain global economic outlook and a UK recovery that seems to be losing steam, limited by shortages in materials and labour.

That puts the Bank of England in a tight spot. On 4 November Threadneedle Street’s interest rate-setters must confront a problem they have been weighing for months – whether climbing inflation is a short-term pandemic pest, arising from turning the economy off and back on again as well as scrambling global supply chains, or a persistent problem that must be contained with an interest rate hike.

If the committee of rate-setters does increase the key interest rate, it would mean the central bank has to move ahead of its international peers, hiking ahead of the US Federal Reserve, and the European Central Bank.

The Bank of England’s own forecast is that inflation will reach more than 4 per cent by the end of this year, potentially overtaking the underlying growth in real average wages calculated by the Office for National Statistics. US figures, out Wednesday, showed price growth in the world’s largest economy remains elevated.