The Bank of England is widely expected to raise interest rates for the first time in over three years as it seeks to combat rising inflation. The Monetary Policy Committee (MPC) will make its decision on Thursday, with traders anticipating a hike from 3.75 per cent to four per cent. This would mark the first increase in borrowing costs since August 2023.
The push for action comes after the Consumer Price Index (CPI) inflation rate climbed to 3.5 per cent in September, the highest level in 11 months. The conflict in the Middle East has contributed to this rise, particularly through higher petrol and diesel prices. Additionally, the energy price cap set by Ofgem is expected to increase by 22 per cent in January, further fueling inflation.
Ellie Henderson, an analyst for Investec, suggested that the MPC's patience with inflation is wearing thin. She warned that prolonged high energy prices could lead to more permanent price increases, necessitating a 'risk management' hike. Alexander Harvey, UK economist for Oxford Economics, described a November rate hike as a 'done deal,' driven by elevated oil and gas prices.
The MPC will also consider other economic indicators, such as the UK's unemployment rate, which fell to 4.7 per cent in the three months to August. The economy unexpectedly grew by 0.1 per cent in August, showing resilience despite consumer spending pressures and volatility from the Iran war.