The Bank of England is expected to increase the base rate from 4 per cent to 4.25 per cent this Thursday.

This will make it the eleventh consecutive hike since last December which has seen the base rate moveto the highest level in 15 years.

Although an increase of 0.5 basis points is not ruled out, it is widely considered that a 0.25 point increase is more likely due to remaining concerns over inflation.

The Office of National Statistics is updating its inflation figure tomorrow and it is expected it will edge down into single digits for the first time in six months, possibly by falling to 9.9 per cent.

“We expect a majority vote for a 25 basis point rise this month,” said Andrew Goodwin, chief UK economist at Oxford Economics.

The Bank is in a tough spot this week as it tries to balance fears of baked-in inflation with not wishing to add extra pressure on beleaguered banks, which a higher increase would do.

“Heightened financial stability risks with the collapse of Silicon Valley Bank and emerging uncertainty around global banking stability may warrant a more measured response,” said Sanjay Raja, chief UK economist at Deutsche Bank.

i examines at what a 0.25 percentage point rise means for your money.

Mortgages

Someone with a tracker £300,000 for 20 years you will pay an extra £33.14 a month assuming the Base Rate goes up by 0.25pp and they are on a repayment one. If the same person is on an interest-only deal the payments would go up by £62.50 a month. Should the Base Rate goes up by 0.55pp however, they will pay an extra £78 per month if they are on a repayment deal and by £125 a month if it’s interest-only.

After lots of home owners took to trackers post mini-Budget as the prices of fixes went through the roof, many will be going bax to fixes as trackers look less appealing as rates are going up while fixes come down. First Direct, Cumberland and Principality Building Societies all now offer two-year fixes that are below 5 per cent, some available if you have a deposit as low as 15 per cent.

Mortgage brokers report that increasing number of clients are opting for a two-year fixed-rate mortgage in the hope that when the fixed period is up, they can fix for longer with rates being lower.

Sarah Coles, a financial spokesperson at Hargreaves Lansdowne, said that should the Base Rate go up by 0.25 percentage points this may translate into mortgage rates increasing. But, if the Base Rate goes to 0.5 percentage points, “this would come as more as a surprise to the mortgage market, and would not have been priced in already” In which case we could see rates rise further.

Around 1.4 million households are remortgaging, the majority of whom had been paying at rates below 2 per cent. An extra 3.6 million are on variable deals, whose costs will go up straight away.

Savings

One of the best outcomes from rising interest rates is higher savings rates.

Anna Bowes, founder of the Savings Champion website, said: “The good news is that savings rates have once again become far more tethered to what happens to the Bank of England base rate. That said, with the exception of some tracker accounts, we have not seen any variable rate accounts passing of the full base rate increases.”

How much savers benefit will vary from savings provider to savings provider.

“What we can expect if there is another base rate rise on Thursday, is for more variable rate account hikes. This should drive competition in the best buy tables, pushing rates higher still, so if you haven’t reviewed your savings accounts recently, now is a good time to do so as you could well increase the interest you are earning.”

Fixed rate accounts are a different matter as the rate of interest offered tends to be based on what the market expects the base rate to do.

At the moment there is still the feeling that inflation is likely to start falling and therefore we could be close to the top of the rising base rate cycle.

“As a result, fixed term rates could well remain flat. That said, there has been a flurry of positive rate rises over the last few weeks – so there may be gems out there if you act fast. But if you are constantly waiting for better rates to come along, you are missing out on more interest in the meantime, and might miss the latest peak.”

Credit card and debt

A higher base rate is bad news for borrowers as more of their money taken up by interest payments on loans, mortgages, credit cards and overdrafts.

If there is an increase, the interest rate on your credit card or overdraft could go up, however, your credit card provider must give you notice before this happens.

If a credit card interest rate rises, those with large debts could explore signing up for a zero per cent balance transfer credit card that clears the debt with no interest applied for a set period. The best ones around at the moment include MNBA which offers up to 31 months interest free, but with a one-off 3.49 per cent fee when you transfer money in. Also NatWest and the Royal Bank of Scotland offer 19 months with no fee.

Annuities and pensions

The state pension will rise by 10.1 per cent in April 2023 in line with inflation.

If someone holds a significant amount of cash in their pension, interest rate hikes will help produce higher levels of growth, but at the moment it will not be anywhere near inflation.

Meanwhile, those with annuities will likely benefit. An annuity provides you with a regular guaranteed income in retirement. You can buy an annuity with some or all of your pension pot.

It is difficult to say exactly how much rates will go up by as annuities are largely priced on the direction of gilt yields and not the Base Rate per se (gilt is government debt).

Helen Morrisey of Hargreaves Lansdowne said: “We’ve seen annuity rates come down from the dizzy heights we saw in the aftermath of the mini-Budget and they have stabilised in recent months. An interest rate increase could give them a boost but it’s also likely an increase has already been priced in and they will remain fairly stable.

“Despite this annuity rates remain much higher than they were this time last year and should always be a consideration for someone looking for an element of guaranteed income in retirement.”

The best annual annuity income from a £100,000 pension for someone aged 60 with a 5 year guarantee is £6,006. This increases to £6,718 for a healthy 65 year old.

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