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Interest rates likely to jump as markets await BOE decision

Mortgage rates are expected to jump on Thursday in response to the largest increase in the Bank of England’s base rate since 1989, as the central bank tries to bring down an inflation rate expected to remain in double figures until at least next spring.

Marking the eighth consecutive interest rate rise, the Bank of England is expected to push the base interest rate up by 0.75 percentage points to 3% after what is likely to be a tense meeting of the monetary policy committee (MPC).

With economic figures showing that Europe and the US will be in recession next year, members of the MPC are expected to remain split over whether to restrict the rise to 0.5 percentage points to prevent an even deeper downturn than already forecast.

The nine-strong MPC will come under pressure from rate hikes by the US Federal Reserve, which on Wednesday hiked its rates by 0.75 percentage points, and the ECB, which increased its main deposit rate by the same amount last week.

Last month, Bank governor Andrew Bailey said the economic situation had deteriorated since the MPC signalled a 0.5% rise in the summer.

He said: “As things stand today, my best guess is that inflationary pressures will require a stronger response than we perhaps thought in August.”

Homebuyers with tracker or variable rate mortgages will immediately feel the pain of the rate rise. At the same time, the estimated 300,000 people who must remortgage this month will find that two-year and five-year fixed rates remain at levels not seen since the 2008 financial crisis.

The average two-year fixed rate has fallen to 6.47% from 6.65% in mid-October – as the effects of the disastrous Kwasi Kwarteng mini-budget ease – but remains three times the rate lenders offered earlier this year. A five-year fixed-rate mortgage that could be bought for 6.51% on 20 October has slipped only marginally to 6.31%.

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