A rapid interest rate rise seems inevitable – and households are expected to pick up the tab

The Bank of England is set to raise interest rates again, as forecasts show inflation approaching 5% by next spring. Economists predict multiple rate hikes may be necessary, potentially as early as December. With the economy showing minimal flexibility and lacking productive capacity, the UK must calm inflation before it spirals out of control.

Higher borrowing costs will impact households, businesses, and the public sector, with interest rates expected to push up mortgage deals and business loan expenses. Consumers, particularly those in higher income brackets, will bear the brunt of increased prices due to running down savings. However, they have become increasingly wary of greedy retailers and suppliers.

The state, through government expenditures accounting for 25% of overall consumption, could serve as a weak link in price increases, while corporations will attribute rising costs to geopolitical tensions, climate change, and new worker protection rules. The public sector's ability to curb costs remains uncertain, especially after years of austerity and job cuts.

With infrastructure projects like HS2 and the Thames crossing spiraling in cost, public sector spending is a significant contributor to inflation, and they have the power to influence business negotiations. Policymakers at Threadneedle Street expect all three consumer groups to accept higher prices, potentially limiting inflation but risking a slowdown in economic growth.