Interest rates will rise to more than 4% next year and remain there into 2024

Interest rates will rise to more than 4 per cent next year and remain there well into 2024, according to City expectations. 

The revelation will be a blow to millions of businesses, households and mortgage holders grappling with the biggest cost of living squeeze in generations. 

The Bank of England has raised interest rates six times in a row, to 1.75 per cent, as it tries to rein in rampant inflation. 

Another rate rise is on the cards for later this month, despite the growing risk of recession and the huge surge in household energy bills. 

Only a month ago, experts were predicting that interest rates would peak at 3 per cent by the end of this year before falling back next year.

But with inflation set to soar well into double-digits, rates are now expected to hit 4 per cent next February, according to SONIA, a key commercial benchmark used to set mortgage rates. 

Worse still, borrowing costs will continue to rise, reaching a peak of 4.4 per cent in June 2023, and not fall below 4 per cent until April 2024. 

‘It’s a huge move by any measure,’ said Jackie Bowie, of risk consultancy Chatham Financial. ‘The scale and acceleration of the market’s interest rate expectations is significant.’ 

Higher base rates should help the pound, which has just seen its worst monthly fall against the dollar since the Brexit referendum. There are growing fears that sterling, currently at $1.15, could slide to parity with the dollar. 

The Bank of England has been criticised for not raising rates sooner to nip inflation in the bud. 

However, the Bank’s stance is in stark contrast to its counterpart in the eurozone. 

An era of free money there will end this week if – as widely expected – the European Central Bank raises rates above zero for the first time in a decade.