The cost of borrowing is set to jump if the Bank of England lifts the base rate for the first time in a decade in November as expected.
But this will mark the beginning of a dramatic change in policy and the start of may more rate increases in 2018, according to forecasts from Capital Economics.
Analysts from the firm predict core interest rates will quadruple from the current low of 0.25 per cent by the end of net year, as the economy picks up speed.
This could likely mean a dramatic increase in the cost of debt repayments, including mortgages and credit cards.
It comes after monetary policymakers this week warned a hike will happen in the coming months if the economy continues on the same track.
Markets are now expecting the Bank of England’s Monetary Policy Committee (MPC) to raise rates to 0.5 per cent in November, when governor Mark Carney presents the inflation report.
But this will be just the beginning of an increase to 1.25 per cent in little more than year, Capital Economics has forecast.
Oliver Jones from the economist firm said: “We suspect that investors are underestimating how quickly rates will rise towards this lower peak.
“We expect the MPC to follow through and deliver a 25bp rate hike in November this year.
“And our forecast is for rates to rise a further three times next year, as the economy performs better than the MPC’s forecasts currently envisage.”
The group believes the economy is at a turning point where trade and business investment will increase over the coming months, prompting rising inflation and further rate hikes from the Bank.
However, not all economists believe the Bank will rapidly hike the base rate.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “Recent data, the Committee said, had pointed to “a slightly stronger picture than anticipated” for Q3 GDP growth, but it now remains to be seen whether the economy can sustain its limited momentum in the face of the threat of imminent rate rises.
“On balance, we continue to think that GDP growth and domestically-generated inflation will be too weak for the MPC to raise rates over the next year, but its clear now that it would not take much of an improvement in either to spark the MPC into action.”