Bank of England Faces Tough Choices Amid Rising Inflation Pressure

The Bank of England's decision to keep interest rates as expected has left it facing tough choices. The bank uses interest rates to control inflation, which has risen to 3.1% in August from 2.9% in July.

This is the highest rate in six months and was driven by increases in petrol, diesel, and airfare prices. Economists expect global energy costs to feed through to food and fuel prices paid by consumers, meaning inflation rates are yet to peak.

The Bank of England's Monetary Policy Committee (MPC) will be aware that the European Central Bank recently raised interest rates to 2.5% and the US Federal Reserve increased its rate to 3.5%-3.75% for similar reasons.

Lenders have already started increasing the cost of new fixed-rate mortgages in response to market expectations of a higher Bank rate, with the average two-year fixed residential mortgage rate reaching 5.77%, its highest since November 2023.