Financial markets are bracing for a sharp rise in UK interest rates on Thursday, and further hikes by the end of the year.

Financial markets are betting there is a 75% chance that the Bank of England will increase rates to 2.5% this week, up from 1.75% at present ? a 0.75% rise.

That would be the biggest rate hike since 1989, when inflation was climbing rapidly after a consumer boom. It also follows six rises from the UK central bank already this year.

Money markets have priced in 200 basis points of hikes over the next three decisions, implying Threadneedle Street will raise rates by three-quarter points at two of those meetings.

They are also predicting that rates could reach 3.75% by the end of the year, while the UK central bank is also due to start quantitative tightening.


?The arguments for a 75 basis-point move are more compelling than those for a 50 basis-point increase,? Paul Hollingsworth, chief European economist at BNP Paribas, wrote in a note to clients.

However, a survey by Bloomberg gave a less bullish result. The majority of the 47 economists it surveyed expect the Bank to raise its benchmark lending rate by a half-percentage to 2.25%.

The members of the monetary policy committee (MPC) are likely to split on the decision.

Matthew Ryan, head of market strategy at global financial services firm Ebury, said: ?We think that the decision between a 50bp and 75bp rate hike will be a close call among BoE members at this Thursday?s meeting??

?Traders will be paying very keen attention to the MPC?s communications after the decision, particularly comments on how high rates could go in 2023.?