BOE Set to Hold Rates as Inflation Rises Above Target

The Bank of England is expected to keep interest rates unchanged on Thursday despite rising inflation in the UK. Markets assign an over 80% probability that the bank will hold rates steady, according to LSEG data.

UK inflation rose to 3.1% in August, its first move above 3% since March and well above the central bank's 2% target. The latest inflation increase is largely driven by motor fuel costs, which jumped 23% year on year.

The Bank of England has not altered its key interest rate this year, after last changing rates in December with a 25-basis-point cut. Data released on Wednesday shows that the UK's borrowing costs are at their highest level in the G7, with yields on long-dated 20- and 30-year gilts approaching 6%.

The latest inflation rise may sharpen concern among policymakers over the inflation outlook and reinforce expectations of tighter policy following at the November meeting. The Bank is expected to halt sales of 20- and 30-year gilts in its rate decision announcement on Thursday.