BoE Faces Pressure to Hike Rates Amid Rising Inflation

The Bank of England is likely to keep interest rates unchanged at its next meeting on Thursday despite rising inflation. This would be the sixth consecutive time that the Monetary Policy Committee (MPC) has opted for a 'wait-and-see' approach, particularly with regards to the ongoing Middle East conflict and its impact on the UK economy.

Economists predict that interest rates will remain at 3.75% as policymakers weigh the risks of hiking rates too quickly. However, three members of the MPC - Huw Pill, Megan Greene, and Catherine Mann - have voted to increase rates to 4% in previous meetings, and some experts expect this outcome again.

The recent jump in inflation to 3.1% in August, a five-month high, has raised concerns about the cost-of-living crisis in the UK. Consumer Prices Index (CPI) inflation is further away from the Bank of England's target rate of 2%. Experts warn that services inflation, which reflects prices in the UK's dominant industry, could continue to rise as energy prices increase.

Thomas Pugh, chief economist at RSM UK, predicts that inflation will peak at almost 4% in early 2027 before gradually dropping back to 2% in 2028. Charlotte O'Leary, associate economist for the National Institute of Economic and Social Research (Niesr), suggests that the MPC may hold rates on Thursday but could eventually raise them as inflation continues to rise.