Bank Holds Interest Rates as Iran War Sparks Hike Fears

The Bank of England's Monetary Policy Committee (MPC) has decided to hold interest rates at 3.75% for the sixth consecutive time, but policymakers warn that rising global energy prices and the ongoing conflict in Iran could lead to a future hike.

The decision was met with a split vote among the nine-member committee, with six members voting to maintain steady borrowing costs and three calling for an increase to 4%.

Governor Andrew Bailey explained that while global energy costs have had a limited impact on UK prices and wages so far, this volatility is expected to persist and eventually lead to higher inflation. He stated that the longer this persists, 'the bigger the impact it will have on inflation' and the more likely it is that interest rates need to be raised to meet the 2% target.

Economists are cautioning that borrowing costs may soon be hiked to tackle rising inflation in the UK. The Consumer Prices Index (CPI) inflation rate rose to 3.1% last month, a five-month high driven largely by petrol and diesel prices at multi-year highs.