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Bank of England set to hike interest rates to highest level since 2009

The Bank of England is expected to hike interest rates to their highest level for almost a decade on Thursday. Credit: PA

The Bank of England is expected to raise interest rates to their highest level for almost a decade on Thursday.

This increase is the second time interest rates for borrowers will go up since the financial crisis struck.

Members of nine-strong Monetary Policy Committee (MPC) are predicted to increase rates from 0.5% to 0.75%, following last November’s quarter point hike.

A 0.25 per cent rise would add approximately £260 to a variable mortgage and £2.50 per £1,000 of savings.

A 0.25 per cent rise would add approximately £260 to a variable mortgage and £2.50 per £1,000 of savings. Credit: PA

It's their highest level since March 2009, when the rates were slashed from 1% to the emergency low of 0.5% in an effort to contain the fall-out from the financial crisis.

Investec economist George Brown said he is "fairly confident" the Bank will move to raise rates and is pencilling in an 8-1 vote in favour, with Sir Jon Cunliffe the only dissenter.

Mr Brown believes the raise will be the only increase in 2018. But he predicts a quarter point rise every six months until rates reach 1.5% in 2020.

"We think the bank wants to raise rates in a gradual way and that would be consistent with the next one in February," he said.

The Bank edged a step closer to pressing the button in June when its chief economist Andy Haldane joined two fellow policymakers in calling for a rise.

Mark Carney is Governor of the Bank of England. Credit: PA

Howard Young at the EY Item Club believes the vote may be less definitive, given that inflation figures recently came in lower than expected – unchanged at 2.4% in June, while wage growth has also been weak.

The decision to raise rates would come as a blow to some borrowers on variable rate mortgages, but would offer relief to savers who have seen minuscule returns on deposits since rates have languished at 0.5% or below since 2009.

It is thought the Bank’s latest set of forecasts in the accompanying inflation report will reinforce the case for a rise, with many economists expecting growth to have recovered to 0.4% in the second quarter after slowing to 0.2% in the previous three months.

Bank of England had already predicted interest rates would increase. Credit: PA

The Bank’s last move to raise rates in November from 0.25% to 0.5% was the first such move for more than 10 years, but merely reversed the cut made in the aftermath of the Brexit vote.

The Bank had already predicted in May this would be the case and its latest set of forecasts are set to confirm its outlook for the year ahead.

But the Bank is likely to increase its inflation forecasts, with a weaker pound, higher oil and energy prices further justifying the need for a rise.