By The Bank of England has raised interest rates 12 times since the end of 2021, a record run, as everybody is surely aware.
Few expected this before it happened, either among forecasters, in the financial markets, and among mortgage borrowers.
Nearly 15 years of near-zero interest rates had made this seem like the norm.
To illustrate this, I recently came across a column I had written for The Sunday Times on October 31, 2021, headlined “A Scary Halloween Story on Inflation and Interest Rates”.
This, written when Bank Rate was still an all-time low of 0.1%, reflected on new predictions from the Office for Budget Responsibility (OBR).
Its main forecast then was that the official rate would soon rise to 0.75% and stay there for three years, thus continuing the pattern of low rates seen since the 2008-9 financial crisis.
But the OBR also offered an alternative scenario, if inflation proved to be more of a problem.
Under this one, and this was the scary bit, Bank Rate would rise to the heady heights of 3%, a rate not seen for well over a decade.
So scary did it seem, in fact, that few believed it would ever happen.
It did, and more.
Bank Rate is now 4.5%, having got there in both small and large steps.
The smallest was 0.15%, as the Bank dipped its toes into the water in December 2021.
The largest, 0.75 percentage points, was in November last year. Reflect on that.
The maximum rate between March 2009 and the spring of last year was 0.75%. In one got, the Bank had raised by that much, and a coupe of half-point hikes followed.
Mortgage rates do not follow official interest rates as closely as they used to, because of the shift to fixed rate mortgages.
Even as Bank Rate was rising last winter and this spring, mortgage rates came down from the giddy heights they had reached in the wake of the Liz Truss-Kwasi Kwarteng min budget in September last year.
The mortgage market has, however, now started to reflect concerns about where Bank Rate will peak.
Rates are edging up again, with a typical two-year fix on 90% loan to value up to 5.12%, and a five-year fix up to 4.79%, both slightly higher than they were before the Bank’s latest rate rise on May 11.
At the end of April, these typical rates were 5.04% and 4.67% respectively.
So this is an important time.
The next decision from the Bank of England’s monetary policy committee (MPC) is not until Thursday June 22.
Before that, there will be two new inflation figures.
The first, on Wednesday (May 24) this week, covering April, is expected to show a significant fall in inflation.
Taking it comfortably into single figures, as a result of some of the energy price hikes dropping out of the 12-month comparison.
The next reading will come on June 21, the day before the MPC’s next decision.
The key question is not what happens to “headline” inflation, which definitely should fall significantly this time after a couple of disappointments.
If it does not, we really do have a problem.
The question is what happens to so-called core inflation, excluding energy and food.
It needs to show evidence of a fall before the Bank can start to relax.
That is not the only important indicator affecting the outlook for interest rates.
The Bank is concerned about the growth in wages.
In the latest official figures, its dilemma was laid bare.
The number of people off company payrolls fell sharply in April but pay growth was strong, with regular pay up by 6.7% on a year earlier in the latest three months, and by 7% in the private sector.
Total pay growth, including bonuses, was lower at 5.6%.
The question MPC members will be asking will be whether, if inflation falls as they expect, pay rises will also head lower.
We are clearly getting the near the peak in interest rates.
Andy Haldane, the Bank’s former chief economist, agrees with two members of the MPC, Silvana Tenreyro and Swati Dhingra, that rates should not go up any further.
The majority on the MPC is not so sure.
The sooner that peak is reached and we can begin to look over the hill to eventual rate reductions, the better.
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