UK interest rates set to go up for the 13th time in a row

The UK’s Consumer Prices Index (CPI) was unchanged in May at a rate of 8.7%, according to the Office for National Statistics.

It came in above analysts’ expectations for the fourth month in a row and indicated that inflation has remained persistent despite the Bank’s efforts to bring it down to the 2% target.

Economists agree that the Bank’s Monetary Policy Committee (MPC) is likely to raise interest rates on Thursday (June 22), from the current rate of 4.5%, and that more hikes are on the horizon.

The Bank of England is likely to raise interest rates to 4.75 per cent (Image: PA)

Financial markets are expecting interest rates to rise by 0.25 percentage points to 4.75%, but there is a 40% chance that the rate could be pushed up even higher, by 0.5 percentage points to 5%.

This means it will be more expensive to borrow which in theory will push banks to lift saving rates.

However, banks have actually come under fire from a group of MPs on the Treasury Committee for not raising savings rates as much as borrowing costs.

How does raising interest rates lower inflation?

High inflation has been a problem in the UK for a little while now, and the higher interest rates are meant to try and bring it down.

On the Bank of England website it states: "Low and stable inflation is vital so that money keeps its value and people can plan for the future with confidence. It’s fundamental for a healthy economy."

The current UK target is to have inflation at 2%, and higher interest rates make it more expensive for people to borrow money so people are encouraged to save.

Therefore, it means people tend to spend less.

Higher interest rates guide people towards spending less overall (Image: PA)

The Bank of England adds: "If people spend less on goods and services overall, the prices of those things tend to rise more slowly. Slower price rises mean a lower rate of inflation."

When will interest rates go down in the UK?

Back in May, it was anticipated that interest rates may only go up a couple of more times so that the economy was not dampened too much.

The Monetary Policy Committee meets eight times a year (roughly every six weeks) meaning the interest rates could go down within a couple of months.

Rob Morgan, chief investment analyst at Charles Stanley, said: “Getting the inflation genie back into the bottle is proving troublesome for the Bank of England.

“With price momentum continually running above expectations alongside strong wages data, the Bank has no choice but to continue on a path of raising interest rates several more times.”

However, a spokesman for Prime Minister Rishi Sunak said he is still on track to meet the Government’s target of halving inflation by the end of the year, despite last month’s setback.