LONDON, June 22, 2023 (BSS/AFP) - The Bank of England is forecast Thursday to
lift interest rates for the 13th time in a row -- and may hike sharply to
fight stubborn inflation despite worsening a cost-of-living crisis.

The British central bank's Monetary Policy Committee (MPC) had been expected
to raise its key lending rate, which stands at 4.50 percent, by another
quarter-point to combat inflation that is the highest among G7 nations.

However, bombshell data out Wednesday showed UK inflation holding at 8.7
percent in May, dashing hopes of a slowdown and sparking bets on a larger
half-point hike.

Either move would bring the BoE rate to the highest level since the 2008
financial crisis and further dent economic activity.

A hike would be in stark contrast to the Federal Reserve which paused last
week after a sharp easing in US inflation, but would outpace the European
Central Bank's quarter-point increase.

Norway and Switzerland are also expected to lift borrowing costs on Thursday.

- 'More work to do' -

"The bottom line, regardless of the size of tomorrow's move, is that the MPC
has a lot more work to do to bring underlying (UK) inflation under control,"
said BNP Paribas analysts.

Wednesday's data dealt a major blow to British Prime Minister Rishi Sunak,
who has made slashing inflation a priority for his Conservative government
heading into a general election next year.

UK core inflation, which strips out food and energy costs, spiked in May to
7.1 percent -- the highest in more than three decades.

Sunak now faces a burgeoning crisis in Britain's housing market, with
mortgage rates and rents surging, biting deep into disposable incomes while
pay rises fail to keep pace with inflation.

Traders now anticipate UK interest rates will hit six percent by the end of
the year, while the Fed will likely stand pat and the ECB could soon reach
the top of its current rate-hiking cycle.

JP Morgan economist Karen Ward, who sits on Hunt's economy advisory council,
warned that the BoE might have to effectively "create a recession" if it is
to bring inflation under control.

- 'Biggest concern' -

The British government wants to see inflation reduced to five percent by the
end of the year, or about half the level at the start of 2023.

"Inflation is what erodes people's savings and pushes up prices, and
ultimately makes them poorer," Sunak said Wednesday.

But main opposition leader Keir Starmer, whose Labour party is well ahead of
the Conservatives in opinion polls, slammed Sunak over the "Tory mortgage
penalty" as home loan rates continue to climb.

The BoE has lifted rates from a record-low 0.1 percent in late 2021 as it
sought a handle on inflation, which hit a 41-year peak at 11.1 percent last
October on rampant energy bills after gas producer Russia invaded Ukraine.

The policy has sent the UK government's long-term borrowing costs -- used as
a reference for mortgage products -- jumping.

Commercial lenders also tend to match the BoE's rate moves on their home loan
products, which are typically offered for two or five years but are
renegotiated upon expiry.

"The biggest concern now will be the steeply rising mortgage rates," warned
Richard Flax, chief investment officer at wealth manager Moneyfarm.

"The added premium on mortgages, along with the cost-of-living squeeze from
inflation, will add significant duress on many households."