There is “still work to be done” for the Bank of England, an analyst has said, ahead of today’s expected interest rate rise.

William Marsters, financial markets expert at Saxo, said: “The Bank of England is expected to announce yet another interest rate rise today as the UK continues to grapple with high levels of inflation. From the current level of 5 per cent, most are expecting a lift of 0.25 per cent, but another 0.5 per cent increase can’t be ruled out.

“With inflation decelerating in Europe and the US, it is speculated that those Central Banks may be approaching the end of their hiking cycle signalling light at the end of the tunnel. The UK inflation figures also fell last month, but Britons continue to experience the highest inflation across the G7 economies. So, some argue that this macroeconomic backdrop calls for greater tightening.

“Three large UK banks announced they would cut mortgage rates this week on the back of last month’s reduced inflation numbers. This gives homeowners an element of hope after some data showed this week has seen the fastest drop in house prices for 14 years.”

“There is still work to be done from the BoE, and the government maintains its promise to cut inflation in half this year. The policy move today, and any commentary will be closely watched by investors looking for clues on future policy, and also by consumers who are struggling with the cost of living crisis.”

A housebuilding company has said there has been “some pause” on prospective homeowners buying properties amid an increase in mortgage rates.

Peter Truscott, the chief executive of Crest Nicholson, was asked on Radio 4’s Today programme if demand for housing is falling as interest rates rise.

He said: “Demand still remains very strong in terms of clicks onto the website, people that are interested in buying homes, but not surprisingly, there has been some pause in terms of people actually coming in and reserving homes.

“I think a lot of people are standing on the sidelines. The market is broadly as we expected it to be following the the dislocation at the back end of last year and it’s tending to be volumes which are taking the strain rather than price.

“There is a little bit of gentle downward pressure on price, but it’s really volumes that are taking the strain.”

Money markets could even reduce their rates if the Bank of England signals that core inflation is stabilising and interest rates are close to their peak, an analyst has suggested.

Speaking to BBC Radio 4’s Today programme, Jane Foley, head of FX strategy at Rabobank, said the costs of fixed-rate mortgage deals “are more tied to money market rates which factor in expectations of where rates will be in two years or one year etc”.

If the Bank indicates later today that core inflation is stabilising, Ms Foley said, then “money market rates may not move, they may even come down a bit” – reducing the cost of fixed-rate mortgage deals.

A further interest rate rise would risk damaging the UK’s fragile economy and is unnecessary to tackle inflation, a shadow committee of economists organised by the right-wing Institute of Economic Affairs think-tank has said.

Having met once a month since 1997 to shadow the Bank of England’s Monetary Policy Committee, the group voted eight to one to keep the base rate at 5 per cent, with one member voting for a half-point increase to 5.5 per cent to prevent inflation from “becoming embedded in the economy”.

Trevor Williams, the group’s chair and former chief economist at Lloyds Bank, said: “It will take some time for previous rate rises and falling global commodity prices to feed into lower inflation. But, in the meantime, further rate rises by the Bank of England are unnecessary and could do some economic damage without lowering inflation any faster.

“The UK economy is on the precipice of a sharper slowdown. There has already been a contraction in the money supply, with less liquidly available for loans, lower house price inflation, and slowing economic activity, as shown in the sharp fall in the Purchasing Managers’ Index (PMI) for manufacturing.”

In his latest column, our chief political commentator John Rentoul writes:

The prime minister had obviously learnt from his tetchy clash with a BBC radio presenter on Monday, and came to his longer interrogation by members of the public on Nick Ferrari’s show on LBC determined to be polite, cheerful and thoroughly reasonable.

But Rishi Sunak managed to keep the financial jargon to a minimum (talking of when Jack’s mortgage “comes up for repricing”) and turned his replies effortlessly to the fundamental argument that “the best way to help is to bring inflation down”.

The prime minister can’t talk the economy down, obviously. But given the Bank of England is almost certain to raise interest rates yet again, the battle against inflation is not one that Sunak is currently winning. To be as optimistic as he is risks sounding delusional and voters won’t thank him for not levelling with them.

While interest rate increases spell further pain for borrowers, banks are under more pressure to also pass rate rises onto savers.

Myron Jobson, senior personal finance analyst for Interactive Investor, said: “There might be a bit more urgency among banks and building societies to pass on the base rate rise to their savings products this time around as the Financial Conduct Authority (FCA) has recently gained new powers to take robust actions against those offering unjustifiably low rates.”

The FCA this week shared a 14-point action plan to make sure that savers are being offered better deals.

Thursday’s announcement comes as both the European Central Bank and the US’s Federal Reserve hiked up respective interest rates to two-decade highs this week.

Both central banks opted for a 0.25 percentage point increase amid in the global effort to control rampant inflation.

Pressure on the Bank of England could be cooling as policymakers look set to raise interest rates further, but with an end to the prolonged hiking cycle in sight.

Experts think the latest UK inflation data has taken some of the pressure off the central bank, because it showed a bigger-than-expected slowdown in price rises. It means that rates – which are a tool used by the Bank to bring inflation down to its 2 per cent target – may not need to climb as high as feared.

The level could peak at about 5.75 per cent this year, according to economists from the likes of ING Economics and Deutsche Bank.

“Beyond this month (August), we’re sticking with our prediction of another increase in rates in September, at which point the present rate rise cycle should come to an end,” predicted Andrew Goodwin, chief UK economist for Oxford Economics.

Rishi Sunak said that although inflation is not falling as fast as he would like, he believes people can “see light at the end of the tunnel”.

Consumer Prices Index inflation was at 7.9 per cent in June – down from 8.7 in May and the lowest rate since March 2022 – but the PM needs it to fall to around 5 per cent or below by the end of the year in order to meet one of his government’s key pledges.

Mr Sunak told LBC’s Nick Ferrari: “I know families are struggling with the cost of living and that’s why I set it out as my first priority to halve inflation, and we’re making progress.

“Is that as fast as I’d like? No. Is it as fast as anyone would like? No. But the numbers most recently that we had show that we’re heading in the right direction, inflation is coming down, and I think people can see light at the end of the tunnel.”

Investec Economics has predicted the Bank of England will opt for a larger-than-expected 0.5 percentage point increase on Thursday.

But the firm expects it could be followed by a final quarter-point hike the following month before the cycle of interest rate rises comes to an end.

Laith Khalaf, head of investment analysis at AJ Bell, said: “The market is now expecting interest rates to top out at 5.75 per cent or 6 per cent by the end of the year, so has already pared back its bets from the height of inflationary panic when rates north of 6 per cent were envisaged.

“The Bank is still walking a tightrope though, as it tries to tame inflation without breaking the housing market.”