Bank of England policymakers are trying to douse the flames of inflation by raising the base rate by 0.25 percentage points to 4%. A hike was widely expected, so it hasn’t set off fireworks on financial markets, but it will give borrowers a shiver as budgets become stretched in the year ahead. Policymakers were unanimous in their plot to raise rates, which may strengthen expectations of further hikes to come.

The cold reality of an era of higher interest rates is hitting home, with three further rate hikes being priced in by financial markets. The conflict in the Middle East has had deep repercussions, and policymakers are anxious about higher energy costs being passed on to consumers and becoming embedded in the economy. So they are trying to dampen down demand by making borrowing more expensive. This is set to act as a drag on spending and investment, make employers more reticent about taking on additional staff, and keep wage growth in check.

Hopes have been swirling this week that the big win by Democrats in the US will mean a further escalation is curtailed, given they look set to have a tighter hold on military spending budgets. However, Brent Crude has been creeping higher again, as uncertainty continues to reign and energy prices still remain around a third higher than before the conflict began. Investors are being reminded that geopolitical risks are still a powder keg that could reignite inflation.

There are still doubts, though, about whether the Bank will opt for three further rate hikes by the end of next year, which are priced into financial markets. Although growth has slightly surprised on the upside this year, and the latest PMI manufacturing snapshot showed a greater uptick in activity than expected, growth is already expected to slow next year. So these forecasts do look overblown, and much will depend on the trajectory of the Middle East conflict.

For borrowers faced with the unpalatable task of remortgaging, it’s still a hot potato of a decision. Some will want the security of a fixed-rate deal to plan household budgets ahead, even though it could mean a significant jump in monthly outgoings.

For savers, a rate hike could see even more attractive deals land in the market, and it’s really worth shopping around. Some easy-access accounts are already paying in the region of 5%, although the very best rates often come with restrictions, with even better offers available if you can stow away your money for a year or more. However, rates may not move significantly higher given that the market has already priced in the likelihood of further hikes.