Policymakers at the Bank of England are widely anticipated to raise interest rates on Thursday, marking the first increase to the benchmark rate in more than three years. Most analysts predict a rise from the current 3.75% to 4%, a move that would increase borrowing costs for individuals and businesses while offering a boost to savers.

The Bank rate has fallen from its 2023-24 peak of 5.25%, and the Monetary Policy Committee (MPC) has maintained the current rate at its last six meetings. However, analysts suggest that rising inflation, predominantly driven by increases in the cost of petrol and diesel, will compel policymakers to implement a rate hike.

The official announcement is scheduled for 12:00 GMT on Thursday. Alongside the rate decision, close attention will be paid to any indications from the MPC regarding the future trajectory of interest rates. "The decision is increasingly less about whether rates reach 4% and more about what follows after that," noted Chris Cheverall, head of UK at trading platform CMC Markets.

A quarter-point increase is largely expected, but the Bank faces the challenge of balancing inflation that remains above its target with an economy experiencing a sharp weakening in its growth outlook. The Consumer Prices Index (CPI) measure of inflation, while below its recent peak, has been trending upwards and is forecast to continue rising.

Inflation stood at 3.5% in the year to September 2026, up from 3.1% the previous month and significantly above the central bank's 2% target. The ongoing impact of global events, particularly on energy and fuel costs, has contributed to the UK's inflation rate. Domestic energy customers are anticipating a substantial price increase in January.

The Bank of England last increased interest rates in August 2023. The base rate influences the borrowing costs set by commercial banks for mortgages and the interest rates they offer on savings accounts. A 0.25 percentage point rise would immediately affect approximately 510,000 individuals with tracker mortgages.

Calculations by UK Finance suggest that such an increase would lead to a £31 rise in monthly repayments for someone with a typical tracker mortgage. Those with variable rate mortgages, numbering around 470,000, would see their payments adjusted based on their lender's response to the Bank's decision. Typically, this could mean an increase of about £14 per month.

For borrowers on fixed-rate deals, the immediate impact is less direct, but future refinancing costs will be affected. Lenders have already incorporated the anticipated rate rise into their current offerings. As of November 4, the average two-year fixed residential mortgage rate was 5.96%, and the average five-year rate was 5.99%, according to Moneyfacts. This means borrowers coming off five-year deals could face significantly higher mortgage bills, with some potentially paying nearly £5,000 more annually on a £200,000 mortgage over 25 years compared to those who remortgaged in 2021.