Bank of England Holds Rates but Prepares for Hike as Inflation Looms

The Bank of England has decided to hold interest rates at their current level, despite increasing signs that inflationary pressures will soon necessitate a hike. 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%.

The Bank's Governor Andrew Bailey acknowledged the impact of global energy costs on the UK economy, stating 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, and the more likely it is we will need to raise Bank Rate to ensure that inflation falls back to our 2% target.'

The minutes accompanying the decision show that inflation is expected to rise to around 4% in the first quarter of next year from the current 3.1%, as households face another increase in their domestic energy bills.