This will push interest rates to their highest since early 2008 and further hikes are expected this year.

If the rise goes ahead on Thursday, 3 August, it will be the 14th successive rise to the base rate and will pile more pressure on borrowers.

Nearly 70% of economists, 42 of 62, have said they think the Monetary Policy Committee (MPC) will push the base rate up by 0.25%, according to a Reuters poll. Just 20 predicted a half point rise.

It comes as the US Federal Reserve has also increased rates to their highest level for 22 years. The US bank pushed up rates for the eleventh time since 2022 to a range of 5.25 to 5.5%.  

The base rate has been continually raised to tackle high inflation which is currently at 7.9%, a monthly fall from 8.7% in May, but still significantly higher than the government’s 2% target.  

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Monthly increase of £32 for mortgage holders

Another rate rise will put further pressure on homeowners who are already struggling with the rising cost of borrowing.

A 0.25% rate hike would lead to an average monthly increase of £32 to mortgage repayments, based on a house worth £270,708 and a variable rate mortgage with a loan to value (LTV) rate of 75%, according to figures from TotallyMoney.

Mortgage holders will also now be paying an average of £593 more than they were in December 2021. The price increases vary across the country, with London homeowners set to pay the highest extra costs of £61 more a month or £1,139 since December 2021.

More than 1.4m fixed mortgage deals are also due to end this year, which will lead to big price hikes for those borrowers. 

Alastair Douglas, CEO of TotallyMoney, said: “Whatever’s been said during the inflation blame game, the fact is that wages are lagging, savings are being spent, and borrowing is becoming more expensive. People are being squeezed, and instead of pointing fingers, the Bank of England and the government need to work together to decide what’s next.

“They say bad luck comes in threes, but the last thing we need now is a recession. Covid and the cost of living have already taken their toll on people’s physical, mental and financial wellbeing. Unemployment is creeping up, two and a half million people are out of work due to long-term sickness, and consumer confidence is at risk.”

A ‘close call’

Sanjay Raja, senior economist for Deutsche Bank, said the decision next week will be a “close call” but is also predicting a rise of 0.25% to the base rate.

Looking forward, the bank said there is “enormous uncertainty” around wage growth and inflation. Therefore its current prediction is for two further 0.25% rate hikes this year, with the base rate peaking at 5.75% before beginning to fall in quarter two of 2024. 

Raja said: “It’s too early for the MPC to declare victory on inflation. Underlying price pressures remain too strong with wage growth running at more than double the pace needed to bring inflation sustainably back to target.

“With bank rate now over 5% – and pushing firmly into restrictive territory – we see the Bank sticking with more ‘normal’-sized hikes going forward.”

‘Lumbered’ with a high inflation rate

Ruth Gregory, deputy chief UK economist at Capital Economics (CE), said core inflation is expected to ease to 2% by the end of 2024.

But despite this, the forecast by CE is that the peak of the base rate will be 5.50% and rates won’t begin to fall until the second half of 2024.

She said: “The UK is still lumbered with an inflation rate that is 1.4 percentage points (ppts) higher than in the eurozone. And at 4.8ppt, the gap between UK and US CPI inflation (which stood at 3.1% in June) is still growing.

“Meanwhile, although it is now converging with the rates elsewhere, at 6.9%, core inflation in the UK remains much higher than the equivalent in the US (4.9%) and in the eurozone (5.5%).”

Gregory said it is the UK’s “persistent labour supply shortfall shortages” which will lead to inflation taking longer to come down when compared to other countries.