The Bank of England will today be forced to admit that inflation will remain high for far longer than previously predicted, as it increases interest rates for the sixth time in a row.

Governor Andrew Bailey is expected to unveil forecasts showing inflation will still be significantly above 10% in 2023.

The Telegraph reports that markets are betting that the Bank will raise interest rates by 0.5% in an effort to combat surging prices - its biggest increase in 27 years.

Markets are said to be pricing in a roughly 90% chance of the Bank’s monetary policy committee (MPC) hiking rates from 1.25% to 1.75%.

Policymakers will also announce plans today to start selling the £850billion mountain of Government debt amassed through a bond-buying programme during the pandemic and financial crisis.

Mr Bailey has suggested the Bank will try to sell between £50billion and £100billion of bonds in the first year, starting this autumn.

The MPC has come under mounting pressure to pick up the pace of rate rises as inflation continues to rise and other central banks push ahead with a rapid unwinding of low rates.

The Telegraph adds that price increases have wrongfooted the economic establishment, with Threadneedle Street insisting inflation would be "transitory" as recently as last November.

Pound could plunge

It comes as UBS warned that the pound will plunge to levels last seen in March 2020 later this year as rising US interest rates strengthen the dollar and the energy crisis rips through Europe.

Sterling risks falling as low as $1.15, according to analysts at the investment bank - down by around 5% from its current level of $1.22.

A debate over how to tackle surging living costs has been at the heart of the Tory leadership contest.

Rishi Sunak will seize on inflation warnings to suggest that now is not the time for tax cuts of the scale proposed by his rival Liz Truss, because putting more money in workers' pockets would only drive prices even higher.

Mr Sunak told the Telegraph: "If we rush through premature tax cuts before we have gripped inflation, all we are doing is giving with one hand and then taking away with the other,"

Ms Truss responded that Britain could not "tax its way to growth".

She said modest tax cuts, "including scrapping a potentially-ruinous Corporation Tax rise that hasn't even come into force", and slashing red tape would not push up the price of UK goods and services.

Ms Truss has also vowed to review the way the Bank sets policy to "make sure it is tough enough on inflation".

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