Financial markets think the central bank is more likely than not to raise its main interest rate from the record low of 0.1% to 0.25% to rein in surging consumer prices stemming from high energy costs, labor shortages and other factors as the global economy recovers from the pandemic.
If the Bank of England does raise rates, it would be ahead of other major central banks, such as the U.S. Federal Reserve and the European Central Bank, which have yet to signal when they might start lifting borrowing rates.
“The long game of limbo for the Bank of England appears almost at an end, with expectations growing that there will be a rate rise at Thursday’s meeting," said Susannah Streeter, senior investment and markets analyst at stockbrokers Hargreaves Lansdown.
Rising expectations of a rate hike have prompted several commercial banks to withdraw many super-cheap fixed mortgage deals. Last week, there were 82 such deals available from 0.84% to 0.99%, but by Tuesday, it had shrunk to 22 deals, according to financial information firm Defaqto.
Those homeowners already on variable rates — of around a quarter — will likely face an immediate increase in their mortgage payments if their lenders respond to any rate hike.
“We have enjoyed record low interest rates for a long time and they had to start going back up at some point," said Katie Brain, consumer banking expert at Defaqto. “For anyone who needs a mortgage, there is never a good time for this.”
A number of policymakers on the rate-setting panel have voiced concerns about the increase in consumer prices. The hope would be that an early rate rise would keep a lid on the peak in inflation.
Though the headline measure of consumer price inflation dipped slightly in September to 3.1%, it remains more than a percentage point above the Bank of England's government-mandated target of 2%. It is also expected to rise further in coming months, with or without a rate hike.
In the past, the rate-setting panel has sometimes held off from raising interest rates if it judged the increase in prices to be tied to temporary phenomena. Some of the current inflation increase is because of temporary factors, including comparing prices to those from a year ago when they had slumped in the early months of the pandemic.
However, there are signs that the rise in inflation is becoming embedded in the British economy through higher wage increases.
“While we consider it's slightly more likely that the bank will wait until the final meeting of the year on Dec. 16, a hike this Thursday would not come as a surprise,” said Kallum Pickering, senior economist at Berenberg Bank.
“Either way, the vote is likely to be split,” he added.