UK interest rates: Pound hits post-Brexit high ahead of Bank of England’s next step

Alexander Harvey, UK economist for Oxford Economics, said a November rate hike looks to be a “done deal” for the committee, which will be responding to higher oil and gas prices.

“So far, two factors have been central to the MPC’s decision-making since the outbreak of the conflict in the Middle East: the scale and duration of the energy price shock, plus the extent of any second-round inflation effects from elevated energy prices,” he said.

“These factors will continue to dominate the outlook for Bank rate.”

He said the key thing economists will be looking out for is any signal from the Bank as to where interest rates could go from here, with the financial markets expecting further hikes into 2027.

Commenting on the expected interest rates hike, Ellie Henderson, an analyst for Investec, said: “We imagine that many committee members’ patience with the recent rise in inflation has worn thin.

“The longer energy prices remain elevated, the greater the risk that a temporary price shock becomes more permanent; a ‘risk management’ hike could guard against this.”

She cautioned that producers might “not be willing or able to shoulder the burden of higher energy prices for much longer” and that this could push up prices in shops.

The Bank of England is expected to hike interest rates for the first time in more than three years, economists have said, as mortgage holders face a further squeeze.

Rate-setters are widely expected to tighten monetary policy in a bid to tackle rising inflation in the UK economy.

Traders in the financial markets are predicting that rates will increase to 4 per cent from 3.75 per cent when the Bank’s Monetary Policy Committee (MPC) announces its decision today.

This would be the first time that the central bank increases borrowing costs since August 2023.