Interest Rate Stability Unravels as UK Economy Shows Surprising Resilience

The Bank of England is expected to keep interest rates at 3.75% this week, but financial markets are increasingly betting that the next move will be upwards as inflation pressures intensify.

Money markets are now pricing in as many as four quarter-point increases by July next year, which would take Bank Rate to 4.75% in less than 12 months.

This could put renewed upward pressure on mortgage rates and housing affordability, especially with the UK economy unexpectedly growing by 0.4% in July and Consumer Prices Index (CPI) inflation rising to 2.9% in July.

Economists expect divisions among rate-setters to remain, with some policymakers favoring an immediate rate increase, while others may adopt a wait-and-see approach.