Soaring Food Prices Set To Fuel Interest Rate Rise

Shock hike in cost of living

- Martyn Brown

STRUGGLING households were dealt another blow yesterday when rocketing food prices sparked predictions interest rates could rise to as much as five per cent as the Bank of England battles inflation.

The warnings came after figures showed the cost of living rose more than expected last month, mainly due to soaring cheese, milk and bread prices and shortages of some fruit and vegetables.

Although inflation fell from February's 10.4 per cent, it was only to a disappointing 10.1 per cent in the year to March.

The figure had been widely expected to dip below 10 per cent until food prices shot up at their fastest rate in 45 years.

It means the rate of inflation is now at the same level it was at the start of 2023. It has been in doubledigits since September and, in October, reached an eye-watering 41-year high of 11.1 per cent.

The Bank of England's target is just two per cent.

Traders say there is a 97 per cent chance of an interest rate rise, from 4.25 to 4.5 per cent, when the Bank next meets to discuss it on May 11. Markets are also now anticipating the level will top out at around 5 per cent even though, until recently, many experts hoped the base rate had already reached its peak.

Matthew Ryan, of global financial services firm Ébury, said: "We believe this morning's data has mixed implications.