BOE Keeps Rates Steady Amid Rising Inflation Concerns

The Bank of England (BOE) surprised markets by keeping interest rates steady despite rising inflation. The key consumer price index (CPI) climbed to 3.1% in August, compared to a rise of 2.9% in July.

Alexandros Xenofonto, Lead U.K. Economist at Global Data TS Lombard, attributed the BOE's decision to hold rates steady to the domestic economy's inability to absorb additional rate hikes without risking a downturn.

Xenofonto pointed out that core inflation, which excludes food and energy prices, has held steady at 2.9% year-over-year since April, but remains above the BOE's 2% target.

The BOE is still monitoring energy prices, waiting to see if they will move into second-round effects, such as wage negotiation rounds next year. Xenofonto believes that the labor market cannot translate energy prices into higher wages and core inflation.