The Bank of England (BoE) is expected to increase interest rates by a further 0.25% next week, according to a Reuters poll of economists.

Despite several rate hikes since December 2021, UK inflation remains extremely high – at 7.9% – which is significantly higher than the BoE’s 2% target.

The Bank of England looks likely to raise rates by a quarter-point to 5.25% on 3 August, although economists and markets see a risk of a repeat of June’s surprise half-point hike as inflation remains hotter than in other big economies.

Both the U.S. Federal Reserve and the European Central Bank increased interest rates by a quarter of a percentage point this week, but unlike the BoE, markets think they are at or near the end of their rate-tightening cycle.

Reflecting on higher wages and prices of last year’s surge in energy costs, Andrew Goodwin, chief UK economist at Oxford Economics, said: “Where rates go after August will depend on the extent to which second-round effects persist.”

Expectations for peak BoE rates reached 6.5% on 11 July after data showed record wage growth. But they fell back after a bigger-than-expected decline in consumer price inflation. Investors are now split fairly evenly between a peak of 5.75% or 6% late this year or early in 2024.

The surge in rate expectations has pushed mortgage costs to their highest since 2008, and higher rates are weighing on housebuilding and other areas of the property market, as well as wider economy.

Most economists polled by Reuters this week see rates going up to 5.25% from 5% next week and peaking at 5.75%, but for many the decision is a close call.

“We believe the MPC will still want to send a strong signal on inflation,” said economists at HSBC, who expect a rate rise to 5.5%, in what would be the central bank’s 14th straight hike.

BoE Governor Andrew Bailey said this month that it was “crucial we see the job through” to curb inflation.