The Bank of England is considering raising interest rates for the first time since the onset of the coronavirus pandemic, against a backdrop of rising inflationary pressures and a rebound in economic growth.

In a final snapshot from the economy before the rate decision is announced on Thursday, monthly data showed a stronger-than-expected rise in activity in Britain’s dominant services sector during October.

Staff shortages and stretched supply chains contributed to a jump in inflationary pressures, with operating expenses and the prices charged by services firms rising at the steepest rate since records began in July 1996, according to the IHS Markit and the Chartered Institute of Procurement and Supply (Cips).

The snapshot from the closely watched business survey comes as Threadneedle Street considers whether to use an immediate rise in borrowing costs to prevent inflation from spiralling further amid a worsening squeeze on households.

Economists said the decision to raise rates from a record low of 0.1% was “on a knife-edge” after weeks of intense speculation, with the rate-setting panel likely to take the latest snapshot from the service sector into account.

Martin Beck, a senior economic adviser to the forecasters the EY Item Club, said further evidence of inflationary pressure would no doubt be noted by those MPC members favouring a rise. However, the nine-strong panel could still choose to wait for more evidence from the economy before raising rates.

“Those pressures still look predominantly to be the result of the adjustment pains of an economy emerging from hibernation, which should give pause for thought,” he said.

Financial markets have put the odds of a rate rise at more than 60%. However, some economists have suggested the Bank could wait until its next meeting in December, or even February, before raising borrowing costs.

Analysts have argued that a lack of guidance away from a November rate rise from Andrew Bailey, the Bank’s governor, indicates that action at Thursday’s meeting is more likely than not. Investors expect that any move would be small, with a rise from 0.1% to 0.25% the most likely first step from the Bank.

Andrew Montlake, the managing director of Coreco, a mortgage broker, said the central bank faced a delicate balancing act. “[It will be] keen to avoid anything that might derail a recovery on one side, or hold off too long to be behind the curve on the other leading to faster, sharper rises,” he said. “Whilst these decisions remain on a knife-edge, one thing we do know is that we should all be preparing for rate rises sooner rather than later.”

According to the IHS Markit/Cips survey of 650 companies in the services sector, which includes hotels, restaurants and financial services, business and consumer spending increased in response to the rollback of pandemic restrictions at home and abroad.

The purchasing managers’ index for October came in at 59.1, up from 55.4 in September, beating the forecasts of City economists. Anything above 50 points indicates activity is rising.

In a promising early signal for the jobs market after the closure of the furlough scheme at the end of September, about 30% of the survey panel reported an increase in employment numbers during October, while only 13% signalled a reduction.

Firms commented on exceptionally strong demand in the hospitality, leisure and transportation sectors. Where a decline in employment was reported, companies blamed unusually high staff turnover amid a bidding war for staff as rivals raised starting salaries to recruit workers.

Despite the strongest growth in activity since July, the majority of service sector companies warned of an increase in their costs, driven by soaring prices for fuel, energy, raw materials, transport and staff.

The latest official figures show inflation as measured by the consumer prices index eased slightly to 3.1% in September, down from 3.2% in the previous month. Inflation is expected to peak close to 5% next year, before gradually falling back towards the Bank’s 2% target rate as disruption to the global economy caused by Covid fades.

Duncan Brock, the group director at Cips, said escalating business costs remained deeply concerning despite the strong performance in October. “The seemingly likely rise in interest rates this week may take some of the heat out of the over-inflating UK economy but will also result in additional pressure on some household budgets, threatening to cut off this stream of good fortune early next year.”