The Bank of England will be under close scrutiny on Thursday when it decides whether or not to push interest rates even higher, after the stability of the global banking sector has been thrown into question.

Economists are on the fence about whether Britain’s central bank will opt for a final rate rise to keep a lid on inflation or prefer to keep interest rates unchanged.

It follows a turbulent week for the banking industry after two major banks in the US collapsed and Credit Suisse said it was receiving emergency funding from the Swiss central bank.

“Until the end of last week, March’s Monetary Policy Committee (MPC) meeting had appeared almost certain to deliver a 0.25 percentage point rate hike, with markets fully pricing that outcome”, said Andrew Goodwin, chief UK economist for Oxford Economics.

However, sentiment changed after the collapse of the US’s Silicon Valley Bank and Signature Bank, the second and third biggest bank failures in US history, over the course of one weekend.

It threw into question whether higher interest rates were putting too much pressure on smaller lenders, who were buckling under the weight of losses on their bond portfolios.

Oxford Economics still expects the Bank to push rates 0.25 percentage points higher, to 4.25% from the current 4%, but stressed the MPC vote will be heavily influenced by how financial markets behave at the start of the week.

Mr Goodwin added: “If market conditions worsen, a rate rise could be delayed to May, or cancelled altogether.”

ING Economics agreed the increase is likely but admitted it will be a “close call” as it will depend on the markets and on February’s inflation rate, which will be revealed on Wednesday.

It also pointed out the Bank could be influenced by the decision of the European Central Bank on Thursday to hike the EU base rate by 0.5 percentage points, defying nervousness over financial instability and sticking to the aim of bringing down inflation.

However, other economists were more confident the MPC will opt to pause its cycle of interest rate hikes.

Investec Economics said it had changed its view from its previous forecast of a 0.25 percentage point rise because “financial stability concerns have suddenly changed” in the wake of turmoil in the banking industry.

Investec said: “There will probably be cautious optimism that the regulatory reforms put in place in the aftermath of the global financial crisis and the enhanced toolkit and readiness to deal with issues in the banking sector will prevent a systemic crisis.

“But until the fog has cleared, more MPC members may decide to indeed leave the bank rate unchanged.”

The Bank’s MPC signalled at the last meeting that it may be nearing the end of its successive interest rate rises after hiking the rate for the tenth time running.

It said: “If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.”

Experts hung on the wording of the statement, which was much softer than in the past, and the fact that inflation has begun to come down off the highs of late last year.