The Bank of England is poised to raise interest rates for the first time since August 2023, with markets expecting a hike from 3.75% to 4% when the decision is announced on Thursday, November 5. This move comes as inflation pressures mount, with the Consumer Prices Index (CPI) rising to 3.5% in September, the highest level in 11 months. The conflict in the Middle East has contributed to higher petrol and diesel prices, pushing inflation further from the Bank's 2% target.
Analysts suggest that the Monetary Policy Committee (MPC) is likely to act to prevent a temporary price shock from becoming permanent. Ellie Henderson of Investec warned that prolonged high energy prices could lead to more permanent inflation, necessitating a 'risk management' rate hike. Suren Thiru of the ICAEW echoed this view, stating that a rise to 4% is almost certain and would be seen as a precautionary measure to curb price pressures.
The Bank's updated economic forecasts are expected to show a mixed outlook, with stronger growth this year offset by weaker growth in the future due to rising inflation and energy costs. Despite these challenges, the UK economy showed resilience in August, growing by 0.1%, while the unemployment rate fell to 4.7% in the three months to August, the lowest in over a year.
The energy price cap, set by Ofgem, rose by 3.6% in October and is forecast to jump by a further 22% in January, adding to inflationary pressures. Traders and economists are closely watching the MPC's decision, which could set the tone for future monetary policy adjustments.