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Bank of England prepares for historic rise in interest rates

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The Bank of England’s monetary policy committee is expected to implement the biggest rate rise in its quarter-century of independence from the Treasury by raising interest rates to 1.75 per cent, up from 1.25 per cent at present.

Until now, the committee has limited itself to a series of 25 basis-point rises.

Traders and analysts have become increasingly confident of a 50 basis-point rise after an unexpected rebound in May GDP figures and amid continuing tightness in the jobs market. Consumer prices rose by 9.4 per cent in the year to June.

The US Federal Reserve again raised rates by 75 basis points, a joint record since 1994, and the European Central Bank raised its deposit rate by 50 basis points, higher than expected, adding to pressure on the Bank of England to prove its credibility.

Financial markets are betting that a 50 basis-point rate rise is almost certain, with a 3 per cent chance of rates rising to 1.5 per cent. George Buckley from Nomura, the Japanese investment bank, said: “With some MPC members talking of a 50 basis-point hike being on the table and with some key data having been strong since the June meeting — for example inflation, earnings and GDP — we now expect the Bank to raise rates by 50 basis points at its August 4 meeting.”