Interest rates look set to be pushed higher on Thursday in what analysts believe will be one of the last in a cycle of increases by the Bank of England.
Despite growing pressure on already strained borrowers, inflation is beginning to edge back down off its highs with economists saying there is a glimmer of hope in the economy's more distant future.
The Bank of England's monetary policy committee will raise interest rates to 4 per cent on Thursday, analysts say, a half-point rise from the current rate of 3.5 per cent.
It is expected by some experts to be the penultimate base rate rise before rates peak at 4.5 per cent or 4.25 per cent, and then decline.
The Bank has been raising rates successively for more than a year.
In December 2021, the base rate stood at just 0.1 per cent as policymakers tried to encourage consumer spending after Covid slowed down the economy.
But efforts to control inflation and bring it back down to the bank's 2 per cent target has led the authority to tighten monetary policy since.
Inflation around the world - in pictures
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People queue to buy wheat flour at government-controlled prices in Islamabad. Pakistan's economy has been hit hard by a political crisis, as well as devastating floods and the global energy crisis, with the rupee plummeting and inflation at decades-high levels. AFP -
A market in Rio de Janeiro. Brazil's inflation ended 2022 with a sharp slowdown from double-digit peaks seen throughout the year. Reuters -
A market in Istanbul. Turkey's inflation at the end of 2022 stood at 64. 27 per cent, the country's Statistical Institute said, while the independent group of inflation researchers ENAG calculated it at 137. 55 per cent. EPA -
A Walmart in New Jersey. According to a poll, US Republicans and Democrats have distinct views of what’s most important for the government to address amid high inflation. More Republicans name gas and food prices, energy and immigration, while Democrats focus on health care, climate change and poverty. AP -
A used car sales lot in California. US Federal Reserve officials have indicated it’s possibly too early to declare victory over inflation. AFP -
A person walks by a sign showing interest rates at a bank in New York. EPA -
A woman walks with purchases past a store in Berlin. In December, consumer price growth across the Euro zone slowed to 9.2 per cent from 10.1 per cent a month earlier, Eurostat data showed last week. AP -
Workers sit in front of a banner reading "Stop the Inflation Monster" at the Burchardkai Container Terminal as they go on strike for higher wages at the harbour in Hamburg, Germany. Reuters -
Price tags at a market in Nice, France. Reuters -
Commuters cross Waterloo Bridge in London. The British Retail Consortium said spending in store chains rose by 6.9 per cent in annual terms in December, but this was a long way off consumer price inflation, which hit 10.7 per cent in November. Reuters -
Jobseekers in Johannesburg. South Africa’s governing party wants the central bank’s mandate broadened to shore up the economy and promote employment in addition to its existing task of tackling inflation. Reuters -
Social grant recipients stand in a queue outside a post office, as joblessness takes its toll in Meadowlands, South Africa. Reuters
The UK's consumer prices index inflation rate, however, slipped slightly to 10.5 per cent in December, down from 10.7 per cent in November and 11.1 per cent in October, suggesting the measure has now passed its peak.
Deutsche Bank said Thursday would probably mark the committee's final "forceful" rise in the tightening cycle with a 0.5 percentage point increase.
The need to "go big" is due to factors including wage growth beating expectations, indicating that consumers still have some spending power and that prices are still historically elevated, Deutsche said.
Societe Generale Global Economics suggested the same, but said it expected another 0.5 percentage point rise in March before any decrease.
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"Even though the outlook is less gloomy than expected only three months ago, we still think a recession is likely and the MPC's forecasts should continue to predict one for this year," said SocGen economists.
"This, and the mounting evidence of some cooling in the labour market, vacancies and job growth in particular, should lead the committee to contemplate an imminent end to tightening."
Investec Economics, on the other hand, anticipated a smaller rate rise that would take it to 3.75 per cent on Thursday, before peaking at 4 per cent in March.
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"Recent weeks have ushered in a greater sense of economic optimism," said Philip Shaw, chief economist at Investec.
"This has been driven partly by the mild European winter, which has helped to avoid a need for energy rationing, contributing to a substantial fall in current spot gas prices as well as gas price futures.
"In the UK, we are set for another year where real household disposable incomes are set to fall by about 3 per cent, which will continue to squeeze spending and make a recession virtually unavoidable."
AJ Bell analyst Laith Khalaf said that a lot has changed since the last MPC meeting, including the fall in gas prices, which will make the committee "think twice about pushing rates up too much".
