Bank of England Poised for Rate Hike Amidst Inflation Surge
A quarter-point increase is expected to push the Bank Rate to 4%, marking the first rise since August 2023.
Sarah Connor
The Bank of England is expected to raise interest rates today.
The 3.5% figure solidifies market expectations for a rate hike this month, with more potentially coming in 2027.
Rate-setters on the Bank's Monetary Policy Committee (MPC) are moving to tighten monetary policy. They aim to tackle rising inflation across the UK economy.
The conflict in the Middle East pushed the Consumer Price Index further from the Bank’s 2% target rate. A surge in petrol and diesel prices drove this increase.
Sharp rises in fuel costs, a direct result of the Iran war and bottlenecks in the Strait of Hormuz, squeezed global oil and gas supplies.
We imagine that many committee members’ patience with the recent rise in inflation has worn thin.
Ellie Henderson stated, "We imagine that many committee members’ patience with the recent rise in inflation has worn thin." Henderson added that a "risk management" hike could guard against a temporary price shock becoming more permanent.
Economists expect inflation to climb higher this winter. Ofgem’s energy price cap rose by 3.6% for a typical household on October 1, and the cap is forecast to jump by a further 22% in January.
The average two-year fixed residential mortgage rate stood at 5.96% as of 4 November. Despite these inflationary pressures, the UK's unemployment rate fell to 4.7% in the three months to August, and the economy unexpectedly grew by 0.1% in August.
Alexander Harvey noted, "So far, two factors have been central to the MPC’s decision-making since the outbreak of the conflict in the Middle East: the scale and duration of the energy price shock, plus the extent of any second-round inflation effects from elevated energy prices." Harvey concluded that these factors will continue to dominate the outlook for the Bank rate.