The Bank of England is expected to raise interest rates at its latest monetary policy committee (MPC) meeting this week, but economists predict two or more members will vote against the first hike in more than a decade.
Market expectations of a hike have risen to fever pitch after Bank officials, including governor Mark Carney, signalled they were preparing to undo the emergency rate cut announced in August last year after the Brexit vote.
Interest rate futures indicated the chances of a 0.25 per cent move upwards in bank rate, the Bank's key interest rate, at more than 90 per cent at the end of last week. That would take it back to 0.5 per cent, off its current historical lows.
Inflation has remained well above the Bank's two per cent target since the last meeting in mid-September, when only two of nine members voted to raise rates.
Howard Archer, chief economic adviser to the EY Item Club, said: "The MPC adopted a markedly more hawkish tone at their last meeting in September, even though only two of the nine members actually voted for a hike."
He added: "The MPC is becoming increasingly reluctant to tolerate extended above-target inflation amid mounting concerns over the economy’s growth potential and diminishing slack in the economy."
Signs of a small pick-up in wage inflation and an improvement in economic growth should also give the MPC enough incentive to raise rates, according to Samuel Tombs, chief UK economist at Pantheon Macroeconomics. The Office for National Statistics (ONS) last week said GDP growth picked up moderately to 0.4 per cent in the third quarter, according to a preliminary reading.
"Given these developments, and having primed markets, the MPC would damage its credibility irreparably if it did not follow through now," said Tombs.