BoE Hints at Hawkish Pause Amid Rising Inflation Concerns

The Bank of England's (BoE) rate decision on Thursday will be the main focus ahead of first-half numbers from retailers Next and Galliford Try.

Kathleen Brooks, research director at XTB, said Wednesday's consumer price inflation data supports a 'hawkish pause' from the BoE. The August CPI reading came in at 3.1%, up from 2.9% in July, but core prices remained stable at 2.6%. Transport prices added the most upward pressure to the index.

Brooks noted that while there are no signs of inflation passing through to the broader economy, raw material costs have risen by 6.1%, and factory gate prices by 3.7% annually. The energy price cap is expected to remain high over winter, with growing concerns it could rise by 25% in January if energy prices stay elevated.

This detail means the BoE cannot rule out future rate hikes, despite interest rate futures markets scaling back expectations for a hike on Thursday. Around four rate hikes are still priced in by the end of next year, and the specter of a prolonged hiking cycle will remain over the UK, darkening the economic outlook.