The Bank of England has hiked interest rates for a 14th consecutive time, further raising the cost of borrowing in its bid to tame stubborn inflation.

The central bank’s Monetary Policy Committee increased its base rate by a further 0.25 points to 5.25 per cent on Thursday, the highest level since February 2008. It follows a shock rise of 0.5 per cent in June, which has piled pressure on mortgage holders and the housing market.

Economists, however, are eyeing an end to the current cycle of rate increases, after the latest inflation figures suggested that the price rises eating into household budgets were falling faster than expected.

Consumer Prices Index (CPI) inflation was 7.9 per cent in June, down from 8.7 per cent in May and the lowest rate since March 2022, according to official figures published last month by the Office for National Statistics (ONS). As a result, the Bank’s base rate 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, 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.

Interest rate pain for mortgage-holders has partly fuelled the largest slump in property values for 14 years, with house prices declining by 3.8 per cent on average annually in July, according to Nationwide. But some experts have suggested that the positive news on inflation has had a calming effect on the housing market, despite the fact that consumers “are not out of the woods yet” on further interest rate hikes.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “A few lenders, including HSBC, Barclays and Nationwide, have reduced their fixed-rate mortgage pricing on the back of better-than-expected inflation news.

“This has led to a calming of swap rates, which underpin the pricing of fixed-rate mortgages, after weeks of considerable volatility.”

The Bank of England’s announcement comes after both the European Central Bank and the US Federal Reserve hiked up respective interest rates to two-decade highs this week, with both institutions opting for a quarter-point increase amid global efforts to quell inflation.

Rishi Sunak, who needs inflation 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, insisted on Wednesday that consumers could see “light at the end of the tunnel” on rising prices.

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 shown 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.”

Conservative MPs are increasingly concerned that interest rates and inflation could still be high at the next general election, and that the Government can do very little to “sweeten the pill” for the public before then.

The Bank of England is widely expected to raise interest rates again on Thursday for the 14th consecutive time, and some predict rates could hit 6 per cent before they start to fall again. The latest hike could mean further increased mortgage costs for millions of homeowners as the Bank tries to counteract the effect of record-high inflation.

Multiple Tory MPs admitted they were increasingly concerned the impact of high interest rates and inflation on the party at the ballot box, and suggested the public needed to accept they were worse off in the interim.

“The reality is to get inflation under control, people do have to be poor,” one backbench Tory MP said. “You have to have less money. But that is not a particularly politically sellable strapline.”

They added that the party was “struggling to come up with something that would ease the burden but still have the right effect on inflation”.

This was echoed by a former minister, who said that reducing inflation “almost inevitably means a drop in people’s living standards for a period of time.”

“It is a really difficult sell to the public. No one likes to admit it,” they added.

Both MPs also expressed concern the state of the economy could be challenging for the Conservatives when it comes to the next election. The party has been consistently trailing behind Labour in the polls over the past year, and many Tory MPs are concerned that the poor state of the economy could lead to the Conservatives losing power.

“Elections are lost on the economy,” the backbench MP said. “If people are hurting then that is something that we do have to be very, very conscious and aware of. Which is why the government is like to have this laser-like focus on getting inflation down.”

Another senior Tory admitted it was a “real worry” among colleagues that interest rates may still be high at the next election, which is expected sometime in 2024.

“We have seen in history when inflation starts to rise you do not have too many tools at your disposal… we have to wait for the medicine to work, unfortunately,” they added.

There was also some concern within the party that the continued hiking of interest rates may harm the UK economy rather than help bring down inflation. Nick Fletcher, Conservative MP for Don Valley, said, “Another rise in interest rates on Thursday will only damage the economy further.”

“The timing of this is at odds with the market coming the day after three major lenders have slashed their mortgage rates.”

He said the Bank was “caught asleep at the wheel last summer” by waiting too long to begin raising interest rates, and that this was “another example of poor decision-making at the heart of this institution”.

“The Bank of England must stop this apparent war on borrowers and let the last 13 rate rises take effect before bringing them down to a more sustainable level towards the end of the year,” Mr Fletcher continued.

It comes after Prime Minister Rishi Sunak faced criticism on Wednesday for a man facing a £1,300 increase in mortgage payments due to high interest rates that the average increase was only £200.

He also suggested he could extend his mortgage by a further “five or 10 years” and that it would “save you hundreds of pounds”.

• An Agencies report