The Bank of England is expected to raise interest rates on Thursday, contributing to higher mortgage payments for more than two million households. The move follows warnings from the Treasury watchdog, the Office for Budget Responsibility (OBR), that the cost-of-living crisis will worsen in 2027.
First rate rise in over three years
Experts expect the Bank's Monetary Policy Committee to increase rates from 3.75% to 4%, marking the first rise in more than three years. The hike would be an attempt to control inflation, which rose to 3.5% in September. The Government's official inflation target is 2%.
Banks and building societies are expected to increase mortgage interest rates as a result, although some have already done so in anticipation of the announcement.
Impact on households
With more interest rate hikes expected in 2027, this means higher monthly bills for 2.3 million households on fixed-rate deals that come to an end next year.
Maike Currie, vice-president of Personal Finance at PensionBee, said: "The Bank of England is caught between a rock and a hard place. Inflation is heading in the wrong direction, but raising interest rates risks piling further pressure on households already struggling with the cost of living."
"A quarter-point rise may sound modest, but for millions of mortgage borrowers, the real pain is yet to come. According to UK Finance, more than 2.3 million fixed-rate mortgage deals expire in 2027, and many households will find themselves taking out new deals at much higher rates than they previously enjoyed," she added.
Market expectations and economic forecasts
Matthew Ryan, head of market strategy at global financial services firm Ebury, said: "Sterling enters into Thursday's Bank of England meeting in a strong position as markets bet on a rate rise this week and three further hikes in 2027."
Figures from the Treasury and the OBR published alongside last month's Budget showed inflation is forecast to rise to 3.75% in early 2027, while unemployment is also set to rise, peaking at just above 5%.
The OBR said in its Budget report: "We expect no growth in real earnings in 2027 and 2028, and a slight fall in real household disposable income per person in the near term."
