Last week’s stubbornly high inflation figures have prompted many pundits to change their predictions, with some predicting a rate hike from 4.25% to 4.5% in May and then another increase or two later in the year.

The base rate has been rising steadily over the past year and a quarter with 11 rises to the rate since December 2021. The most recent rate rise – in March – saw the base rate upped to 4.25%.

Julian Jessop, fellow at the Institute of Economic Affairs, said: “The Monetary Policy Committee has said that evidence of more persistent inflation would mean that interest rates have to rise further, so another increase next month may now be inevitable.

“It need not be like this. A more credible central bank would be able to look forward, rather than back, and keep interest rates on hold. There are still many reasons why inflation is likely to fall sharply in the months ahead, including the substantial tightening in monetary and financial conditions which is only just starting to feed through.

“Unfortunately, if your only tool is a hammer, every problem is a nail. The bank seems set to raise interest rates further, increasing the risks of overkill.”

Deutsche Bank is another organisation that has revised its prediction about what the Bank of England’s monetary policy committee will do next. It now expects the rate to hit 4.75% in June.

Inflation in the UK remains above 10%, according to the latest ONS inflation figures, a fact which has confounded markets and led to interest rate expectations spiking.

Laith Khalaf, head of investment analysis at AJ Bell, said: “The market is now anticipating three interest rate rises this year, which would take the Bank of England’s base rate to 5%. Before the release of the latest inflation data, the expectation was we would only see one more interest rate hike, possibly two. So there has been a considerable shift in sentiment.”

More optimistic outlooks

Other financial experts are more optimistic. Research group Capital Economics said the March base rate rise could be the penultimate hike in the tightening cycle. But it added that it depends on how quickly inflation begins to fall, with concerns that wage growth could add to inflationary pressures.

Economists at the organisation suggest higher interest rates will be temporary, peak at 4.5%, and that the rate could fall to 3% in 2024.

Paul Dales, chief economist at Capital Economics, said: “The economy has continued to be resilient, but there is still some evidence that inflation pressures are easing anyway. That suggests that interest rates may not need to rise much further.

“These are small changes, though. I still think the most likely scenario is that interest rates rise from 4.25% now to a peak of 4.5%, stay at 4.5% for the rest of this year and then are reduced next year to 3%.”

Alice Haine, personal finance analyst at Bestinvest, says the combination of easing inflation and a loosening labour market is raising hopes the BoE will refrain from raising interest rates again – bringing the painful and rapid pace of rate rises since December 2021 to an end.

“The pivot away from the tightening cycle would certainly offer some respite to household finances but the decision is still too close to call with the Bank of England equally likely to push ahead with a further 25 basis-point hike as it strives to quash sky-high inflation once and for all.

“Looking ahead, a much sharper drop in the inflation rate is expected in April, as the figures will no longer be comparing with the period before Russia invaded Ukraine when energy prices were lower.”