Policymakers at the Bank of England are expected to raise interest rates on Thursday in what would be the first increase to the benchmark rate for more than three years.

Most analysts are predicting a rise from 3.75% to 4% in a move that would increase the cost of borrowing for individuals and businesses, but boost savers. The Bank rate has fallen from its 2023-24 peak of 5.25%, though the Monetary Policy Committee has left it unchanged at its last six meetings.

The announcement will be made at 12:00 GMT on Thursday, and close attention will be paid to any hints on the future direction of rates.

Why inflation forced it

Rising inflation, driven primarily by the cost of petrol and diesel, will push policymakers into an interest rate hike, analysts suggest. The Consumer Prices Index has been heading back up and is expected to go higher.

It was 3.5% in the year to September 2026, up from 3.1% the previous month and well above the central bank's 2% target. The ongoing impact of the Iran war, primarily on the cost of energy and fuel, has filtered through to the UK inflation rate, and millions of domestic energy customers are braced for a hefty rise in prices in January.

The Bank's base rate is what it charges other banks and building societies to borrow money, which influences what they charge their own customers for mortgages as well as the interest they pay on savings.

The services surprise

The Bank of England is expected to raise interest rates on Thursday after a closely watched survey showed growth across the UK's services sector leapt last month to an eight-month high, bolstered by spending on artificial intelligence.

S&P Global's survey of the services sector in October showed businesses regained much of the momentum they lost after the start of the Iran war, but also felt the impact of a renewed spurt of input price inflation, which accelerated to a five-month high.

Tim Moore, economics director at S&P Global Market Intelligence, said manufacturing data earlier in the week showed similar pressures. He said the signals underscored the near-certainty of a Bank of England rate hike in November and collectively raised the likelihood of further policy tightening into 2027.

A majority of the nine-member committee is expected to vote on Thursday for a 0.25 percentage point increase to 4%, according to the Guardian's reporting.

What it costs borrowers

Were the Bank rate to rise, there would be an immediate impact on the 510,000 tracker mortgage-holders. A 0.25 percentage point rise would mean a £31 increase in monthly repayments for someone with a typical tracker home loan, according to calculations by banking trade body UK Finance.

The 470,000 mortgage-holders on variable deals would need to wait for their lender's reaction to any Bank rate rise. Savers would see the benefit more quickly, though banks have been slow to pass through higher rates in full.

Chris Cheverall, head of UK at trading platform CMC Markets, said the decision was increasingly less about whether rates reach 4% and more about what follows after that. He said the Bank now has to balance inflation that is still too high against an economy where the growth outlook has weakened sharply.

What markets expect next

Financial markets expect three further increases in the cost of borrowing, although most City economists believe inflation is likely to peak in the spring of next year, allowing the Bank to limit the number of extra interest rate rises to one or two.

That gap between market pricing and economist forecasts is the thing to watch in the language that accompanies the decision. A vote split would tell you how uncomfortable the committee is, and a shift in the guidance would tell you whether the Bank sees this as a correction or the start of a cycle.

For households, the practical question is simpler. A tracker mortgage moves this week, a fixed deal moves at renewal, and the energy bill moves in January. The rate decision is the smallest of those three events and the one that gets the most attention.

The politics of the decision are awkward for a government that has spent the year talking about growth. A rate rise raises mortgage costs for households already facing higher energy bills, and it does so weeks before the winter price increase lands.

Threadneedle Street's argument is that letting inflation settle above target would be worse. The committee's framework says it looks through one-off shocks, and the question is whether a war-driven fuel increase counts as one-off or as something that feeds into wages and services prices. October's survey suggests the second, which is why the vote is expected to pass. A single quarter-point move will not decide the election or fix the public finances, but it will reset the mortgage bill for half a million households in a month when energy prices also rise.

Other threads from this week sit alongside it: the inflation reading that reset the debate, how much electricity Britain generates per person and the AI trade that has been driving markets.