“It has the worst of both worlds: high and persistent headline inflation due to energy prices and a very tight labor market due to rising long-term illness.” ING argued that weakening economic data would tempt the Bank to opt for a rise of just 0.5 percentage point, while Capital Economics expected a rise of 1 percentage point. Markets are not expecting a rise as high as they predicted last month because Chancellor Jeremy Hunt has reversed most of his predecessor Kwasi Kwarteng’s mini-budget. There were fears that the tax hikes would further fuel inflation, forcing the Bank into more drastic measures on interest rates. However, investors are still betting on the key rate to peak above 4.5%. The Bank will also unveil new economic forecasts, with rate-setters expecting inflation to peak at just under 11% at its latest meeting. The best-case scenario nationally is that home prices “increase slowly” over the next year, Mr. Rhodes said. He added that the best and worst case scenarios “are the two extremes that are the tail probabilities”, adding that his central forecast was for prices to fall between 8-10% in 2023. Rival lenders Lloyds and NatWest said last week they expected house prices to fall between 7-8% next year as higher mortgage costs and squeezed household finances threaten to send the market into recession. In the US, Mr Powell hinted at more modest rate hikes once higher borrowing costs take effect. He said: “The question of when to moderate the pace of increases is now much less important than the question of how high to raise interest rates. “At some point, it will become appropriate to slow down the rate of increases. That time is coming and it may not be until the next meeting or the one after that. “We will stay the course until the job is done.”
