Interest rates are predicted to be raised to 3 per cent today - an increase of 0.75 per cent and the biggest single jump for 30 years.
The Bank of England is expected to unveil the biggest interest rate rise for decades on Thursday as it tries to control the runaway inflation which is battering British households.
And in more bad news for hard-pressed Britons, Karen Ward, a member of Chancellor Jeremy Hunt’s economic advisory council, predicted this morning that interest rates will reach 5 per cent over the next few months.
More than 1.5million households, who are on tracker or standard variable mortgages, will feel the pain instantly as the base rate rise filters through. Borrowers with a £200,000 standard variable mortgage could see their repayments jump by more than £1,000 a year if the Bank raises rates to 3 per cent.
In a crunch meeting, the nine members of the Monetary Policy Committee including Governor Andrew Bailey will make a decision that could push up the amount that millions of mortgage holders have to pay their banks every month.
The consequential decision is expected to push up the Bank's base interest rate from 2.25% currently to 3%, the highest since 2008. Mortgages are decided against this rate.
The Bank of England is expected to announce its biggest interest rate increase in three decades
In a crunch meeting, the nine members of the Monetary Policy Committee including Governor Andrew Bailey will make a decision that could push up the amount that millions of mortgage holders have to pay their banks every month.
Mr Bailey said it was likely the hike in interest rates could be bigger than the 0.5 percentage point increase to 2.25% seen at the previous meeting
If - as expected - the Bank raises interest rates by 0.75 percentage points, it would be the biggest single increase since Black Wednesday. On September 16 1992 interest rates rose twice: from 10 per cent to 12 per cent in the morning and then to 15 per cent in the afternoon.
Today will also be the eighth time in a row that the Bank hikes interest rates. Less than a year ago the rate was 0.1%.
Earlier this month, markets had predicted the interest rate increase could be as much as one percentage point but sentiment has calmed somewhat after the change of Chancellor and Prime Minister and Bank of England bond purchases pushed down on the cost of borrowing.
Markets have also witnessed a decreased appetite for large hikes globally, with the Bank of Canada increasing its interest rate by 0.5 percentage points, below the 0.75 percentage point rise which had been widely predicted.
Nevertheless, last month Bank of England Governor Andrew Bailey said it was likely the hike in interest rates could be bigger than the 0.5 percentage point increase to 2.25% seen at the previous meeting.
He said on October 15: 'As things stand today, my best guess is that inflationary pressures will require a stronger response than we perhaps thought in August.'
Analysts at Deutsche Bank have said they expect the Bank of England to opt for a 0.75 percentage point rise with a split vote.
Experts at the firm said they expect latest forecasts from the Bank of England, which will also be revealed on Thursday, to show that 'the economic outlook has deteriorated further'.
They added: 'Conditioned on market pricing, the UK economy will likely fall into a deeper and more prolonged recession.'
The Bank will also confirm its inflation expectations for the longer term, which are due to show that the cost of living will be much higher than the central bank's 2% target next year.
James Smith, developed markets analyst at ING, also had a downbeat prediction for Bank's latest economic outlook.
'The new set of forecasts due, which crucially are based on market interest rate expectations, are likely to be dismal - showing both a deep recession and inflation falling below target in the medium term,' he said.
'That should be read as a not-so-subtle hint that market pricing is inconsistent with achieving its inflation goal.'
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