The move will add more pressure on households in the UK as prices start to rise. However, it will give savers a little boost to their savings. City economists have predicted that the UK’s central bank will raise its official interest rate from 0.25% to 0.5% on February 3.
The Bank of England has become the first major central bank to raise rates during the pandemic.
In December, the Bank of England’s Monetary Policy Committee voted 8 to 1 to raise interest rates from 0.1% to 0.25%.
Many investors expect interest rates to hit 1.5% by the end of 2022.
The expected rate hike will directly affect around 2.2 million mortgage borrowers in the UK.
However, the interest rate is still well below the current inflation rate, which is over 5%, so savings will continue to depreciate month by month throughout the year.
Rising food prices due to supply chain issues were one of the factors behind inflation rising to its highest level in nearly 30 years in December.
The headline annual consumer price index inflation rate reached 5.4% in December, from 5.1% in November.
The Bank of England expects inflation to peak at 6% in April.
However, some economists fear that the rate of price increase could exceed 7%.
Federal Reserve Chairman Jerome Powell at a news conference this week said the US central bank would not make an interest rate announcement yet.
He said: “I would say the committee is of the view that the federal funds rate should be increased at the March meeting assuming the conditions are appropriate to do so.
“The economy no longer needs sustained support from monetary policy.”