The Bank of England is widely expected to raise interest rates for the first time since August 2023, as economists anticipate a move to combat rising inflation. The Monetary Policy Committee (MPC) is set to announce its decision on Thursday, with traders predicting a hike from 3.75% to 4%. This increase would put pressure on mortgage holders, as borrowing costs rise.
The push for action comes after the Consumer Prices Index (CPI) inflation rate climbed to 3.5% in September, the highest in 11 months. The ongoing conflict in the Middle East has contributed to higher petrol and diesel prices, pushing inflation further from the Bank’s 2% target. Additionally, the energy price cap is set to rise by 3.6% for a typical household this winter, with a further 22% jump expected in January.
Ellie Henderson, an analyst for Investec, noted that committee members’ patience with rising inflation may be wearing thin. She warned that prolonged high energy prices could lead to more permanent price shocks, necessitating a ‘risk management’ hike. Alexander Harvey, UK economist for Oxford Economics, described a November rate hike as a ‘done deal,’ driven by elevated oil and gas prices and second-round inflation effects.
The MPC will also consider other economic indicators, such as the UK’s unemployment rate, which fell to 4.7% in the three months to August. The economy unexpectedly grew by 0.1% in August, showing resilience despite consumer spending pressures and volatility from the Iran war. Financial markets are watching for signals on future rate hikes, with expectations of further increases into 2027.