Bank of England Blinks on Rate Hike

The Bank of England has kept interest rates on hold at its latest meeting, but hinted that it may raise them soon to combat inflationary pressures. The decision was widely anticipated, with six members of the Monetary Policy Committee voting to keep rates unchanged and three backing a quarter-point increase to 4%. Although borrowing rates were left untouched, financial markets believe it's more likely than not that the bank will back an increase at one of its next two policy meetings.

Bank Governor Andrew Bailey stated that higher global energy costs have had a limited effect on price and wage setting in the U.K. so far, but this could change as volatility persists. The inflation outlook remains key for central banks, with some already raising borrowing costs again. In the U.K., inflation is expected to rise to 4% in the first quarter of next year from its current 3.1%, taking it further above the bank's target rate of 2%. This increase is due to another hike in domestic energy bills.

The Bank of England's rate-setters meet on November 5, and many economists believe this will be a natural moment for a change in course. As interest rate expectations rise, it becomes a growing problem for the British government, with servicing its debt accounting for a higher proportion of its spending.