Markets: interest rates will rise to 3.1%

Interest rates will rise to 3% by the end of the year, financial markets believe, as the Bank of England is forced to take further measures to fight inflation. Money markets are forecasting a much tighter UK monetary policy after the Bank upgraded its inflation forecast to peak at more than 11% this year on the back of higher energy prices. Britain must accept there will be “pain” to come, Michael Gove has said. The Bank raised interest rates yesterday for the fifth consecutive time to 1.25%, but resisted pressure to go further amid concerns that doing so would tip the economy into a recession. Investors are now pricing in, on average, an interest rate of 3.1% by the end of the year – which would be the highest since 2008. Cabinet ministers privately questioned the decision to put up interest rates incrementally by a quarter of a percentage point, given that the Federal Reserve, the US central bank, had increased rates by three quarters of a point. “It’s surprising that the Bank of England is getting very different information from the Federal Reserve,” one cabinet minister said. “Either the Federal Reserve is wrong or the Bank of England is wrong.” The Federal Reserve’s rise has triggered a global rout on stock markets. The Times (£) and The Times (£) The FT (£) The Guardian