Britons could be in for higher borrowing costs as economists expect interest rates to go up next week.
Confidence the economy has rebounded after a blip in the first three months and that wages will improve in the coming months are major factors in the potential rise.
If the Bank of England’s nine policymakers do raise the base rate from 0.5 per cent to 0.75 per cent on Thursday, it would be the highest it has been since March 2009, when it was cut from one per cent to 0.5 per cent during the financial crisis.
The predictions come as doubt was cast on a possible hike earlier this month. That came after inflation held steady at 2.4 per cent, instead of rising to 2.6 per cent as economists expected.
Summer meeting: The Bank of England is widely expected to raise rates next week
However, it still looks more likely that policymakers will vote to raise interest rates by a small 0.25 per cent on 2 August, with recent data suggesting economic growth rebounded in the second quarter after a slowdown at the start of the year.
A survey of nine economists by website Finder shows all of them predict a base rate rise, mostly because they believe the economy has improved, inflation is set to go up and so are wages, despite having stagnated so far.
Wage growth (excluding bonuses) slowed to 2.7 per cent while the figure including bonuses remained stuck at 2.5 per cent in the three months to May, according to the latest figures by the Office of National Statistics.
However, the economy is predicted to have grown by 0.4 per cent in the second quarter, up from 0.2 per cent between January and March.
History of the Bank of England base rate
Andrew Wishart of Capital Economics said: ‘The Monetary Policy Committee held off raising rates in May because it wanted to see evidence that the weak patch in economic activity at the start of the year was just a blip.
‘The official data and business surveys released since then suggests that growth did indeed recover in Q2.
‘With little slack left in the labour market, robust growth is likely to lead to a further increase in wage inflation.
‘Alongside the MPC’s ambition to return interest rates to a level from which they can be cut to help in the next downturn, we think that provides reason enough for the MPC to raise interest rates in August.’
Living costs are set to rise as a result of Brexit, say economists
But while there seems to be agreement over an improvement of the economy up to now and positive expectations about wages in the coming months, some economists were concerned about housing affordability and the rise in the cost of living.
While six out of nine saw wages improve in the next half year, three saw housing affordability worsen.
When asked what they thought Brexit would bring, higher trading and living costs were the most likely outcomes cited by five and four out of nine economists respectively.
Three also expected Brexit to weigh on the pound, meaning weaker exchange rates for holidaymakers.
James Smith at ING said: ‘Overall, the recent dataflow has suggested the economy has regained some poise after a particularly weak first quarter.
‘With wage growth still performing reasonably well, it looks like the Bank is gearing up for a rate rise in August.
‘But what comes thereafter is less certain. The retail sector is still struggling, whilst noise surrounding Brexit is only likely to ramp up as we head into the autumn.
‘That could make it trickier for the Bank of England to hike rates further before the UK leaves the EU.’
At Thursday’s meeting, the Bank is also likely to increase its inflation forecasts, with a weaker pound and higher oil and energy prices pushing up the outlook and further justifying the need for a rise.