The Bank of England (BoE) is anticipated to increase interest rates for the 13th consecutive time on Thursday, potentially opting for a significant hike to combat persistent inflation, despite the risk of exacerbating the cost-of-living crisis.

Previous expectations suggested a quarter-point rise in the key lending rate, currently at 4.50 percent, to tackle inflation that surpasses that of other G7 nations.

However, the revelation on Wednesday that UK inflation remained at 8.7 percent in May shattered hopes of a slowdown and prompted speculations about a half-point hike.

Either decision would elevate the BoE rate to its highest level since the 2008 financial crisis, further dampening economic activity.

A half-point hike would contrast starkly with the Federal Reserve’s decision to pause US rate hikes after a significant easing in inflation.

The European Central Bank recently raised borrowing costs by a quarter point, while the Swiss and Norwegian central banks hiked their rates in anticipation of the BoE’s decision.

The latest UK inflation data has dealt a blow to Prime Minister Rishi Sunak, who has prioritized reducing the pace of price increases ahead of the upcoming general election.

Core inflation, excluding food and energy costs, surged to 7.1 percent in May, the highest in over three decades.

Mortgage rates and rents in the UK are rising, impacting disposable incomes as wage growth fails to keep up with inflation.

The BoE’s successive rate hikes have led to a sharp increase in the UK government’s long-term borrowing costs.

Traders expect interest rates in the UK to reach six percent by the end of the year, while the Federal Reserve is likely to maintain its current stance and the European Central Bank may soon reach the peak of its rate-hiking cycle.

Some economists, such as Karen Ward from JP Morgan, warn that the BoE may need to raise rates significantly higher to bring inflation under control, potentially risking a recession.

The British government aims to reduce inflation to five percent by the end of the year, approximately half the level at the start of 2023.

The BoE commenced its interest rate hikes in late 2021, gradually moving away from the record low of 0.1 percent, as economies emerged from pandemic-related restrictions.

In October, UK inflation reached an unprecedented 11.1 percent due to soaring energy costs following Russia’s invasion of Ukraine earlier that year.