Marking the eighth straight rate hike, the Bank of England is expected to raise its key rate by 0.75 percentage points to 3% after a tense monetary policy committee (MPC) meeting. With economic data pointing to Europe and the US heading into recession next year, MPC members are expected to remain divided on whether to limit the rise to 0.5 percentage points to prevent an even deeper recession than was already predicted. The nine-strong MPC will come under pressure from rate hikes by the US Federal Reserve, which raised its key rate on Wednesday by 0.75 percentage points, and the ECB, which last week raised its key deposit rate by the same amount how much. Last month, Bank Governor Andrew Bailey said economic conditions had worsened since the MPC signaled a 0.5% rise in the summer. He said: “As things stand today, my best guess is that inflationary pressures will require a stronger response than we thought in August.” Homebuyers with tracker or variable rate mortgages will feel the pain of the rate hike immediately, while the estimated 300,000 people due to remortgage this month will find two- and five-year fixed rates remain at unprecedented levels since the financial crisis of 2008. The average two-year fixed rate fell to 6.47% from 6.65% in mid-October – as the effects of Kwasi Kwarteng’s disastrous micro-budget subsided – but remains three times the rate lenders were offering at the start of the year. A five-year fixed-rate mortgage that could be bought at 6.51% on October 20 has fallen marginally to 6.31%. Investors expect the bank to continue its rate hike program next year, although Bailey stressed that each decision is made on a case-by-case basis. Until recently, the key rate was projected to reach 5% before tapering off in 2024. MPC members Ben Broadbent, the Bank’s deputy governor, and Catherine Mann, who joined last year from a US investment bank, argued that financial markets were overestimating how far high interest rates would go. In response to their interventions, the markets cut the peak interest rate to 4.75%. Capital Economics, a consultancy, said the Fed and ECB were ready to signal a slowdown in rate hikes, but the UK’s weak economic position meant the Bank of England would have to press ahead. But many analysts said they expected the Bank to moderate its rate hikes next year in response to a tight government budget that is reducing household spending. Deutsche Bank analysts said they expected Threadneedle Street to pick a 0.75 percentage point rise with a split vote. The firm’s experts said they expected the latest forecasts from the Bank of England, also due on Thursday, to show that “the economic outlook has deteriorated further”. Subscribe to Business Today Get ready for the business day – we’ll point you to all the business news and analysis you need every morning Privacy Notice: Newsletters may contain information about charities, online advertising and content sponsored by external parties. For more information, see our Privacy Policy. We use Google reCaptcha to protect our website and Google’s Privacy Policy and Terms of Service apply. They added: “Given the market pricing in, the UK economy is likely to fall into a deeper and more prolonged recession.” Chancellor Jeremy Hunt is understood to be considering steep tax rises to reduce the government’s spending deficit when he announces his budget on November 17. Hunt and Rishi Sunak argued they needed to stop a widening deficit in government spending to reassure financial markets that tax cut proposals in September’s mini-budget were an aberration. Economic conditions have worsened in most developed economies in response to the Russian invasion of Ukraine and the sharp rise in energy costs. UK factories reported a drop in orders in October that was likely to plunge the manufacturing industry into recession before the end of the year. Retailers and service companies have been under pressure from falling consumer and business confidence. Rachel Reeves, Labour’s shadow chancellor, said: “Britain’s unique exposure to economic shocks has resulted from a failure to address over a decade of weak growth, low productivity and underinvestment and widening inequality. “Rising interest rates will mean families on already stretched budgets will be hit with higher mortgage payments. “It will mean higher funding costs for businesses. “For many companies that have had a difficult two years, this will mean desperately difficult decisions about whether to continue.”