Bank of England Holds Interest Rate at 3.75%, Eyes Future Hike

The Bank of England has decided to keep its main interest rate at 3.75% despite higher inflation expectations. This decision was widely anticipated by economists, with six members of the Monetary Policy Committee voting in favor of keeping rates unchanged and three backing a quarter-point increase to 4%. The central bank's governor, Andrew Bailey, stated that 'so far higher global energy costs have had a limited effect on price and wage setting in the U.K.' However, he warned that if this volatility persists, it will have a bigger impact on inflation, making a rate hike more likely.

The decision comes as other central banks, including the US Federal Reserve, start raising borrowing costs again. The Bank of England's minutes show that 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 increase is largely due to the Iran war, which led to sharp increases in oil and gas prices.

Many economists believe that the Bank of England will raise interest rates at its next meeting on November 5. Felix Feather, an economist at asset management firm Aberdeen, stated that 'so it is a natural starting point for a hiking cycle.' The uptick in interest rate expectations poses a growing problem for the British government as the servicing of its debt accounts for a higher proportion of its spending.