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Bank of England set to raise rates again as inflation heads for 10pc

The Bank of England looks set to raise interest rates again as it tries to tackle an inflation rate on course for double digits.

After the US Federal Reserve announced its interest rate hike, the big question for investors awaiting the BoE’s June policy announcement at 9pm Thursday (Australian time) is the size of the increase.

Reuters is reporting that Financial markets are fully pricing in a quarter percentage-point increase in Bank Rate to 1.25%.

But investors have put a nearly 50 per cent probability on a half-point rise by the BoE, something it has not done since 1995.

The BoE has already raised borrowing costs four times since December when it became the first of the world’s major central banks to increase rates after the coronavirus pandemic.

Britain, more than many other rich nations, is facing a mix of high inflation and zero growth or a recession.

Its economy is already showing signs of a slowdown and will be the weakest among the world’s big, rich countries next year, according to forecasts by the International Monetary Fund and the Organisation for Economic Co-operation and Development.

But inflation, which hit a 40-year high of 9% in April, is set to surpass 10% later this year, more than five times the BoE’s 2% target, according to the central bank’s latest forecasts.