Bank of England Eyes Rate Hike Amid Inflation Concerns
The Bank of England has decided to keep interest rates on hold at 3.25% as expected, but its Governor Andrew Bailey hinted that a hike is likely in the near future.
The decision was made by six members of the Monetary Policy Committee, while three voted for a quarter-point increase to 4%. Financial markets believe it's more probable than not that the bank will raise rates at one of the next two policy meetings, either in November or December.
Bailey stated that so far, higher global energy costs have had a limited effect on price and wage setting in the U.K., but the longer this volatility persists, the bigger the impact it will have on inflation. He emphasized that the bank's target rate is 2%, and if inflation rises to around 4% as expected in the first quarter of next year, they may need to raise Bank Rate.
The minutes accompanying the decision showed that inflation is now forecasted to rise due to households facing another increase in domestic energy bills. This could take inflation further above the bank's target rate. 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.