BoE Holds Rate, Flags November Hike Due to Energy Price Cap Concerns

The Bank of England has decided to keep its Bank Rate at 3.75% for now, but the Monetary Policy Committee voted 6-3 to hold rates on hold, leaving economists wondering about future rate hikes.

According to Deputy Governor Sarah Breeden, inflation is approaching levels associated with non-linear effects, and the Bank expects it to peak above 4% early next year due to a potential 25% rise in household energy price cap in January.

The Committee members who voted for a hike framed it as risk management, an insurance move against energy-driven inflation. Governor Andrew Bailey suggested that the Bank could still raise rates in November, depending on the outcome of energy prices.

James Smith, developed markets economist at ING, believes that the entire November decision now hinges on whether wholesale energy and gas prices fall in the coming weeks. If they do, he expects the Bank to stay on hold and potentially cut rates in 2027.