BoE Warns Interest Rates May Rise if Iran War Continues

The Bank of England has warned that interest rates may rise if the ongoing war in Iran continues. The nine-member monetary policy committee voted 6 to 3 to leave borrowing costs at 3.75 per cent, with six members voting to keep rates unchanged and three voting for a 0.25 percentage point hike to 4 per cent.

The Bank expects inflation to rise above its 2 per cent target in the early months of next year due to the surge in global oil and gas prices since the conflict began over six months ago, with more than half of the overshoot attributed to the war in Iran.

Inflation is currently at 3.1 per cent on an annual basis, up from 2.9 per cent the previous month, according to the Office for National Statistics. Andrew Bailey, the Bank's governor, stated that a prolonged conflict would have a larger impact on inflation and make it more likely for rates to rise.

Despite concerns about wage growth and company profit margins, the committee is not overly concerned about these 'second-round effects' typically seen after an inflation shock. The yield on the 10-year bond fell by 0.10 percentage points to 5.2 per cent, while the FTSE 100 gained 0.6 per cent.