How high might interest rates go?

To nobody’s surprise, the Bank of England has hiked its base rate, and, equally unsurprisingly, it has chosen to do so by a relatively modest 0.25 per cent, bringing rates to 1.25 per cent. In 25 years of its existence, the Monetary Policy Committee (MPC) has never raised rates by more than 0.25 per cent at a time. That stands in contrast to the Fed’s decision to raise rates by 0.75 per cent on Wednesday.

If the modesty of the rise was supposed to calm markets, however, it doesn’t seem to have worked. The FTSE100, already down nearly 2 per cent on the day, plunged further on the announcement. The greater worry now must be whether the Bank, having failed completely to see the inflationary surge coming last year, is now falling even further behind the curve in trying to tackle it.

How high could they go? As you can see from the graph, back in February markets expected rates to peak at 1.5