The Bank of England is expected to raise the base interest rate by 0.25 percentage points on Thursday, with market traders pricing in a near-96% probability of an increase, according to the Financial Times’ Investors’ Chronicle.
The anticipated move follows a recent jump in inflation to 3.5%, representing a 0.4% increase from the previous period. Ongoing tensions in the Middle East continue to exert upward pressure on energy prices, adding to concerns about sustained price growth.
Policy committee split
At its September meeting, the Bank’s Monetary Policy Committee voted to hold the rate at 3.75%, though three of its nine members supported an increase. Huw Pill, the Bank’s Chief Economist and MPC member, has publicly stated his support for a rate rise.
A poll of mortgage brokers conducted by Mortgage One found most expect the base rate to reach 4% this week, with successive increases anticipated throughout next year to bring the rate to 5%. Such increases would have significant implications for UK house price growth, which has already slowed as mortgage rates climb.
Market implications
Bloomberg reported that last week’s Budget failed to alleviate pressure on the Bank to tighten monetary policy. The combination of rising rates and increased borrowing costs has already affected property market activity, with investors considering strategies such as mortgage overpayments to reduce long-term interest costs.
The decision on Thursday will signal the Bank’s approach to balancing inflation control against economic growth concerns. Further rate increases could impact property transaction volumes and affordability, particularly in sectors sensitive to mortgage rate fluctuations such as prime London property.
