The Bank of England is widely expected to leave interest rates unchanged at 3.75 per cent when the Monetary Policy Committee (MPC) announces its latest decision on Thursday.
Policymakers face a difficult balancing act as they weigh signs of slowing economic growth against concerns that higher energy costs could add fresh inflationary pressure.
Most economists believe a rate rise is unlikely this month, even as the conflict involving Iran continues to influence global fuel and energy prices.
Interest rates had been falling from their peak of 5.25 per cent before the outbreak of conflict at the end of February disrupted expectations of further reductions.
Higher energy prices are now expected to push up household costs over the coming months.
Any increase in the Bank Rate would also add pressure to mortgage holders.
According to Moneyfacts, a quarter‑point rise to four per cent would add around £450 a year to repayments on a typical mortgage, while a half‑point rise would increase annual costs by roughly £906.
Rachel Springall, a finance expert at Moneyfacts, warned delaying decisions could prove costly for borrowers seeking new deals.
The Bank Rate movements over the past few years
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“Indecisiveness could be the biggest enemy for borrowers this year,” she said. “Rate increases can add hundreds of pounds a year to mortgage repayments, as already proven by recent mayhem in the mortgage market.”
She added significant reductions in mortgage rates are unlikely until lenders gain greater certainty over the future direction of monetary policy.
Recent economic data has added to the challenge facing policymakers.
The UK economy contracted by 0.1 per cent in April, the first monthly decline in eight months. Inflation remains above the Bank’s two per cent target and is expected to rise further in the coming months.
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Homeowners approaching the end of fixed‑rate deals have been urged to review their options
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Suren Thiru, chief economist at ICAEW, said: “An interest rate hold on Thursday looks highly certain, with rate‑setters likely to maintain a watchful approach to tightening policy given the recent deluge of downbeat economic data and growing global uncertainty.”
He warned the outlook could become more complicated if inflation accelerates over the summer.
Sanjay Raja, chief UK economist at Deutsche Bank, said the MPC continued to face competing pressures, “walking a narrow path in balancing weaker labour market outcomes with emerging price pressures”.
He added that policymakers’ patience “may be running thin” as higher energy costs feed through into the economy.
Sarah Tucker of the HomeOwners Alliance said: “If you’re one of the 1.8 million homeowners due to remortgage this year, don’t put off reviewing your options while waiting for Thursday’s announcement.
"Locking in a deal now can provide certainty, while still allowing you to switch to a cheaper rate if rates fall before completion.”
Several major lenders — including Nationwide, HSBC, NatWest and Santander — have reduced mortgage rates in recent weeks, with fixed‑rate deals starting from around 4.56 per cent.
Borrowers can typically secure a new deal up to six months before their existing arrangement expires and may still be able to switch if more competitive rates become available before completion.