The Bank of England is widely expected to lift borrowing costs this week, according to Daily Business, with analysts forecasting a 0.25 percentage point rise that would take the base rate to 4%. The monetary policy committee meets on Thursday to decide.

Key points

  • Expected move — a quarter-point rise to 4% is pencilled in for Thursday's MPC meeting.
  • Base rate — held at 3.75% since the start of the year.
  • Inflation — above the 2% target throughout 2026, with the OBR forecasting a peak near 4% early next year.
  • Mortgages — rates have climbed back to three-year highs as markets price in higher energy costs.

Although the base rate has stayed put since January, lenders have been adjusting their own products, and mortgage rates have returned to levels not seen for three years. Three of the nine MPC members were already calling for an increase at the previous meeting, and with the economy still showing resilience, the argument for a hike has grown stronger.

If rates do go up, it would be the first change this year. Further increases could follow next year, potentially taking the rate to 5% by next winter.

Danni Hewson, head of financial analysis at AJ Bell, said households had begun the year expecting a very different picture, with markets pricing in at least two cuts to the base rate in 2026. She pointed to the OBR's latest forecast, the Budget giveaways and higher pump and energy prices, adding that the conflict between the US, Israel and Iran had escalated with no clear path to peace. "Other central banks have already hiked rates, but the majority of MPC members have clung purposefully to the fence," she said.

Editor's comment

What it means in practice

A rise would feed through to anyone on a variable or tracker mortgage fairly quickly, while those coming off fixed deals will find new offers dearer than they were a few months ago. Savers may see slightly better rates, but borrowers should check their current deal and any early repayment charges before deciding whether to fix.

  • Mortgage holders — check whether your deal is variable or ending soon and budget for higher monthly payments.
  • First-time buyers — affordability checks may get tighter, so get an agreement in principle early.
  • Savers — compare rates on easy-access and fixed accounts before locking money away.