The Bank of England is set to raise interest rates for the first time in a decade to combat rising inflation, according to economists.

They believe that members of the Bank’s Monetary Policy Committee (MPC) will vote 6-3 in favour of lifting the base rate from 0.25 to 0.5 per cent.

The last time the MPC raised rates was July 2007, when it increased them a quarter of a point to 5.75 per cent.

By March 2009, rates had been slashed to a then record low of 0.5 per cent in response to the credit crunch and stayed there for more than seven years.

They were then halved after the Brexit referendum to 0.25 per cent.

However, with inflation climbing to 3 per cent, well above the MPC’s 2 per cent target, the market believes that rates will be hiked on Thursday, the first in a series of slow, gradual increases.

Investec chief economist Philip Shaw said: “It is difficult to say if this rate rise will be a case of ‘one and done’. Typically rate hikes have come in groups and we suspect that the Monetary Policy Committee will gradually move rates up over the years in order to combat what it sees as the inflationary threat.”

Paul Hollingsworth, senior UK economist at Capital Economics, said: “We think that a November hike is pretty much a done deal. The MPC will probably pause for a while after that, to evaluate the impact of the first hike. But we do not think this is going to be ‘one and done’. Indeed, we continue to expect a further three hikes in 2018.”

Speculation about a rate hike has been building over the summer and, according to lenders and finance analysts, a number of borrowers are looking to lock into ultra-low mortgage rates with fixed term deals ahead of the rate hike.

According to the financial services trade body UK Finance, 65 per cent of first-time buyers over the 12 months to August opted to fix their repayments for two years, while 28 per cent opted for two to five years. finance expert Charlotte Nelson said that talk of a base rate hike has started to send fixed-term deal rates higher.

She added that borrowers should act quickly to avoid missing out on the low rates currently on offer and that doing so would help prevent their finances from coming under pressure later on.

“Whilst some borrowers may not see a significant difference in their monthly repayments from one base rate rise, the likelihood of the base rate rising more than once in the next few years is likely to hit borrowers’ pockets hard,” she said.

“With long-term fixed rate deals currently low, borrowers will be able to secure monthly repayments relatively cheaply for up 10 years, giving them the peace of mind that no matter how much the base rate rises, their monthly repayments will stay at the same low rate for some time.”

Elsewhere, the latest Nationwide House price data on Wednesday is expected to show that house price growth is flat at 2 per cent.


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