Financial traders expect the Bank of England to raise the base rate from 0.10% before Christmas to combat rising inflation.
They also expect two 0.25% rises in February and August 2022. If these increases go through the base rate would sit at 0.75% by next year, where it was before the pandemic.
On Saturday Bank of England governor Andrew Bailey raised concerns about the levels of inflation, which sat at 3% as of August but is expected to surpass 4% in the final quarter of the year.
He said: “Obviously I am concerned with inflation above target. Unfortunately, if you look at our last forecast, it is going to go higher I am afraid.
“As the Bank of England governor I would prefer it not be there. But we are in very unusual times and what I would say is we have to manage our way through these times.”
Surging gas prices are one factor behind rising inflation.
However Silvana Tenreyro, a member of the Bank’s rate-setting group the Monetary Policy Committee, indicated a wait and see approach when deciding whether to increase the base rate.
Speaking to BusinessLive Wales, she said: “The prices go up, but they don’t keep going up sustainably, so you have a one-off price effect and in that sense inflation should be transitory.
“By the time interest rates were having a major effect on inflation, the effects of energy prices would already be dropping out of the inflation calculation. If some effects were to prove more persistent, it would be important to balance the risks from a period of above target inflation with the cost of weaker demand.”
Mortgage lenders are promoting the current low levels of mortgage rates as a reason for people to borrow money before it becomes more expensive.
Peter Beaumont, chief executive of The Mortgage Lender, made that assertion when responding to the RICS Residential Market Survey, which found that 68% more property professionals noticed that house prices are rising than falling in September.
He said: “While the ratio of average house price to average salary has never been higher, potential buyers are seizing a window of opportunity while borrowing rates remain low- before the Chancellor announces measures to balance the books and the Bank of England steps in with measures to counter rising inflation.
“Indeed, there’s speculation that interest rates will rise before the end of the year, so locking in long-term fixed-rate mortgages now is an attractive option for many.”