The Bank of England is widely expected to raise interest rates this Thursday, as UK inflation nears 4% and the Iran war shows no signs of ending. The central bank’s first rate hike since 2023 has already been priced in, but economists and investors are split on how aggressive the increases will be moving forward.
One scenario suggests the UK central bank will deliver three more rate hikes by the end of next summer. Strong economic growth, a steady labor market, and worsening energy shocks could push the Monetary Policy Committee to lift the bank rate to at least 4.75%. Money markets have been anticipating this outcome since early September.
Governor Andrew Bailey and his colleagues face a delicate balancing act. While inflation remains a pressing concern, the broader economic and geopolitical landscape adds uncertainty to their decision-making process.