BoE Holds Rates but Hints at Future Hikes Amid Rising Inflation

The Bank of England kept interest rates on hold at its latest meeting but hinted that it may raise them soon to combat inflation. The decision was anticipated, with six members of the Monetary Policy Committee voting to keep rates unchanged while three backed a quarter-point increase to 4%. The bank's Governor, Andrew Bailey, noted that higher global energy costs have had a limited effect on price and wage setting in the U.K. so far but warned that this impact will grow over time.

The Bank of England's decision comes as other central banks, including the U.S. Federal Reserve, begin to raise borrowing costs again. The inflation outlook is key, with the bank expecting prices to rise to around 4% in the first quarter of next year from the current 3.1%. This would take inflation further above the bank's target rate of 2%.

The Iran war has led to sharp increases in oil and gas prices, partly because the Strait of Hormuz has been largely closed to traffic since February. The bank's rate-setters meet again on November 5, with many economists believing that this will be a natural moment for a change in course. The UK government is also facing pressure from rising interest rates, as servicing its debt accounts for an increasing proportion of its spending.