The UK interest rate is now expected to soar to 5.5% later this year, following yesterday’s unexpectedly-strong inflation figures.
This is bad news for people with mortgages and other borrowers.
The consumer prices index dropped to 8.7% last month from 10.1% in March, but the Bank of England had expected a bigger fall to 8.4%.
Meanwhile, core inflation increased to 6.8% in April - its highest level since 1992.
Core inflation strips out more-volatile elements such as rises in food and drink prices, which stayed near 45-year highs at 19%.
Market watchers now expect the interest rate to rise to 5.5% by the end of the year, up from 4.5% currently.
Three meetings
They are certain Threadneedle Street will raise the rate at the Bank's next three meetings in June, August and September.
The Telegraph says the upside surprise in inflation prompted a string of City analysts to tear up their interest-rate forecasts.
Allan Monks, chief UK economist at JP Morgan, said: "There appears to be a concerning interaction between wages and prices – an upside risk in the Bank’s forecasts – and it should try to get ahead of this with clearer signs in the data that this risk is now crystallising.”
He said there was "a good case” for the Bank to consider a 0.50% increase in the interest rate in June".
- UK homeowners and renters are facing a "huge income shock" from the rising interest rate, the boss of Barclays has warned.
C.S. Venkatakrishnan estimates that payments by mortgage holders and tenants will take a chunk of between 28% and 30% out of their income.
He said that compares to an average 20% in previous years.
The typical UK mortgage is a two-year fixed-rate deal. The Barclays boss said that "most people will begin to feel the impact of the higher rate when their current deal expires by the end of next year", and predicted "there is a huge income shock" on the way.
The Barclays chief executive was speaking to a conference held by the Wall Street Journal.
Around 85% of all mortgages are fixed-rate, according to the Bank of England.
Deals end
It said around 1.3million households are expected to reach the end of their deals this year and face a rise of up to £200 per month, based on current rates.
The Bank has raised the interest rate 12 times since December 2021 in an attempt to keep inflation, under control.
The BBC says a typical tracker mortgage customer is now paying about £417 more a month while those on a variable rate have seen their costs rise by £266.