Millions of borrowers face the prospect of a further 0.5% rise in interest rates next month as the Bank of England (BoE) looks to tackle high inflation and wages increases.

Analysts believe the BoE could match June’s shock half-point increase in interest rates at August’s meeting in a move that would take the base rate to 5.5% and lead to further mortgage and loan increases.

It comes after official data showed that wages have increased at a record rate amid fears that inflation could remain stubbornly high.

The Office for National Statistics (ONS) revealed that average regular pay, not including bonuses, was 7.3% higher in the three months to May compared with the same period last year. That matches the revised figure for the previous quarter and is the joint highest since records began in 2001.

The most recent figures show the annual rate of consumer price inflation sitting at 8.7% though food inflation remains well into double digits.

The market is pricing in a 70% chance that the central bank’s monetary policy committee (MPC) will vote for a 0.5% rise next month.

Matthew Ryan, head of market strategy at global financial services firm Ebury, is forecasting a 0.5% rate hike in August, with a “real risk” that the bank base rate will top out above 6%.

He said: “[This] labour report will do little to allay fears surrounding the ongoing cost-of-living crisis in Britain. UK inflation is already running far hotter than policymakers had hoped, and price pressures will struggle to abate any time soon so long as earnings continue to grow at the current scorching pace.

“Financial markets are now pricing in a peak in UK rates of around 6.35 per cent in the first quarter of 2024, which would surely make the BoE the most hawkish major central bank in the world between now and then.”

“We think that markets are slightly ahead of themselves, although we do expect another 50 basis-point hike from the MPC in August.”

The Bank of England will almost certainly need to keep interest rates high for an extended period if inflation pressures persist, the International Monetary Fund’s directors said yesterday.

“A continuous review of the pace and magnitude of monetary tightening is warranted,” IMF directors said after a review of the UK’s economy. “Should inflationary pressures show signs of further persistence, the policy rate may have to be raised further and would need to remain higher for longer to durably lower inflation and keep inflation expectations anchored.”

Reflecting on the latest higher than expected wage figures, Ashley Webb, UK economist at Capital Economics, said this “won’t ease the Bank of England’s inflation fears significantly”.

Webb said that while he expected the Bank to push rates to 5.25% at its next meeting in August, he added “we can’t rule out” an increase to 5.5%, saying “much will depend” on next week’s inflation figure.

Deutsche Bank said that an increase in rates to 5.5% next month “now looks more likely than not”.

Forecasts of more rate rises by the Bank have helped to push mortgage costs to their highest level for 15 years.