The Bank’s nine-member monetary policy committee (MPC) is widely expected to increase the base rate from 3.75% to 4% on November 5 after UK inflation rose further to 3.5% in September, The Guardian reported.
It could be the first of four quarter-point rises over the next 12 months, according to financial market expectations, which would exacerbate the financial pressure on households grappling with higher energy and food bills.
Thousands of borrowers are due to come off fixed contracts in the final months of this year, with 700,000 having been forecast to switch over to new rates between July and December.
A further 2.3mln households will reach the end of their fixed rates next year, according to data collected by UK Finance, a banking industry body.
There has been no change in the Bank of England base rate since December last year, but volatility in the bond markets – triggered in part by energy prices and inflation fears linked to the war in the Middle East – has driven up the swap rates that affect the pricing of fixed-rate mortgages.
An increase in the Bank of England rate could drive those rates, and wider household costs, even higher.
Data released last week showed that mortgage approvals in the UK fell to a near three-year low in September as potential buyers were deterred by the jump in borrowing costs.
Alongside last week’s budget, the Office for Budget Responsibility (OBR) warned that household disposable incomes would fall by 0.6% next year after taking account of inflation. The downgrade compares with the 0.6% increase in disposable incomes the watchdog had forecast in March – an outlook the OBR’s David Miles described as “a pretty grim picture”.
That income squeeze is also being driven by the energy price shock, which the OBR said would push consumer inflation to 3.5% this year, significantly higher than the 2% forecast in March.
Ofgem’s energy price cap, which determines household bills, is expected to rise by more than £400 in January, according to the latest forecast from EDF.
John Healey, the chancellor, made a £100 payout to 20mln households the centrepiece of his budget, saying he wanted to “take the pressure off in the coldest months and see people through to the spring”.
His cost of living package – which also included cancelling fuel duty rises planned by former Chancellor Rachel Reeves and extending a VAT cut on electricity bills – was paid for by tax rises on banks, savers and landlords.
The Bank of England has taken a wait-and-see approach to rising inflation since the start of the war against Iran, in contrast to other central banks, including the US Federal Reserve, Bank of Japan and European Central Bank, which have already raised borrowing costs this year.
Andrew Bailey, the governor of the Bank of England, has made clear that the MPC is watching closely to see if rising prices are being passed through into higher wages for workers – evidence of the so-called “second-round effects” that can lead to inflation becoming embedded.
Before the war in the Middle East, the Bank had been expected to cut interest rates several times this year, with inflation expected to drift back down towards its 2% target.
But an extended period of historically high oil prices, affected by the closure of the strait of Hormuz choking off supplies, has instead fed through into high and rising inflation.
The Bank will publish updated forecasts for economic growth and inflation alongside its interest rate decision this week.
The UK economy beat expectations to be the joint fastest-growing in the G7 in the first half of 2026, which the Office for National Statistics said was partly driven by AI-related sectors.
But official forecasts for next year have been cut sharply amid fears that the higher cost of energy will eventually start to weigh on economic growth.
Although money market pricing suggests the Bank will raise interest rates four times by next July, many City economists suggest two rate rises are more likely.