Bank of England Hints at Rate Hike as Inflation Rises Amid Energy Crisis

The Bank of England kept interest rates on hold at its latest meeting, but hinted that it may raise them soon to combat inflation. The decision was widely anticipated by financial markets, with six members of the Monetary Policy Committee voting to keep rates unchanged and three backing a quarter-point increase to 4%. According to Governor Andrew Bailey, higher global energy costs have had a limited effect on price and wage setting in the U.K. so far, but this volatility will eventually impact inflation.

The Bank's decision was influenced by the ongoing fallout from the Iran war, which has led to sharp increases in oil and gas prices. The Strait of Hormuz has been largely closed to traffic since the attack, contributing to higher energy costs. As a result, inflation is expected to rise to around 4% in the first quarter of next year from the current 3.1%, taking it further above the bank's target rate of 2%. This would likely prompt a hike in interest rates.

Financial markets expect the Bank of England to raise interest rates at one of its next two policy meetings, either in November or December. Many economists believe that the November meeting will be a natural moment for a change of course, as it coincides with the release of the latest quarterly economic forecasts and a press briefing by Governor Bailey.