BoE Warns of 4% Inflation, Suspends Gilt Sales Ahead of Budget

The Bank of England (BoE) has issued a warning that inflation could exceed 4% by early 2027, prompting it to hold its policy interest rate at 3.75%. The central bank's forecast suggests that prolonged energy price volatility will have a greater impact on inflation.

Bank Governor Andrew Bailey stated that if the Middle East situation spills over into price and wage setting, monetary tightening may become necessary. The BoE also announced it would suspend all market sales of UK government bonds (gilts) for six months to finalize its plan to reduce long-term holdings.

The Monetary Policy Committee (MPC) voted 6-3 to hold rates, with three members arguing for a hike to 4%, matching the median forecast in a Reuters economist survey. The minutes show a shift in tone from the previous meeting, positioning the BoE alongside other major central banks preparing for potential rate increases.