The Bank of England is expected to raise the base rate from 3.75% to 4% today after UK inflation rose to 3.5% in September, but some experts have urged it not to, saying holding the rate would be welcome news for households and businesses.
Pressure Mounts for a Rise
The Monetary Policy Committee is widely expected to make its first increase in three years on Thursday lunchtime, amid global economic volatility following the US and Israel attacks on Iran at the end of February. UK families face high diesel and petrol prices, increasing mortgage rates and looming energy price increases, which have all contributed to rising inflation.
Graham Nicoll, financial planner and Chartered FCSI at NCL Wealth Partners, said: "Holding or cutting rates would be welcome news for households and businesses, but it’s hard to see past a rise. Inflation is back at 3.5% and price pressures are spreading beyond fuel. The Bank has a difficult balance: jobs and household finances are already under pressure, but letting inflation take hold could mean higher rates for longer. An unpopular decision now may avoid a more painful one later."
Experts Argue for Holding at 3.75%
Tony Redondo, founder of Newquay-based Cosmos Currency Exchange, said: "The Bank of England should hold at 3.75%, not hike to 4%. September’s CPI uptick to 3.5% has pushed a rise to near-certainty, but it’s an overreaction to transient supply shocks and energy volatility, which domestic monetary policy cannot fix. Higher rates won’t cure global supply constraints; they will hammer British businesses and household cash flow while growth is anaemic and Labour has piled on over £66bn of tax rises since 2024."
Redondo added: "Policy works with a 12-to-18-month lag and the full bite of earlier tightening is still feeding through corporate refinancing and fixed-rate mortgage roll-offs. Another 25 basis points risks choking commercial credit, stalling SME investment and deepening the high-street drag. The MPC should look past headline CPI to core inflation and wage stability and weigh tighter credit against supply-led price pressure. It won’t, fearing for its credibility, so the hike looks all but inevitable."
Mortgage and Business Impacts
Justin Moy, managing director of Chelmsford-based EHF Mortgages, said: "The inevitable outcome will be an increase to 4%; the reluctance is centred around the cause and it isn't frivolous spending in the high street, but external factors linked to overseas wars and the cost of fuel, simply put. The Bank of England have no real alternative tools, increasing the cost of borrowing has always been Plan A, but in today's economy perhaps the MPC need to think beyond the obvious."
Moy noted that an increase has already been baked into all mortgage fixed-rate pricing for the past six months, so most borrowers will see no change. "Mortgages have been self-regulating to a degree. Savers may champion the inevitable decision, but the economists will rightly say this will just slow our real economy further."
Market Messaging and Small Firms
Harvey Dhillon, founder and CEO at Zmartly, said: "Raise to 4% and say that this is close to the peak. Fuel drove September's jump to 3.5%. Motor fuel is up almost 30% on a year ago, but core inflation is 2.8% and private sector pay is growing at 3%. Still, services inflation at 3.7% is the reason to move now. What the Bank needs to consider is the message. Markets are pricing several more rises, and small firms are planning for them."
Dhillon added: "Many of the online sellers I work with have just paid for Christmas stock on overdrafts and cards, with a Self Assessment bill due on January 31. Tell them 4% is near the top and they'll still order for spring and hire. Leave them guessing and they'll sit on cash. A higher-rate taxpayer needs only £12,500 at 4% outside an ISA to use up their £500 savings allowance, unchanged since 2016. From April 2027, interest above that will be taxed at 44 per cent under last week's Budget."
