UK Interest Rate Hike Risk Grows Amid Global Monetary Policy Shift

The UK's interest rate hike risk has grown following the US Federal Reserve's decision to raise rates for the first time in three years.

The Fed increased its target range by 0.25 percentage points to 3.75% to 4.00%, a move that is expected to have a ripple effect on global interest rates, including those in the UK.

The Bank of England, which announces its latest interest rate decision today, currently stands at 3.75%. While an immediate increase is not expected, the combination of higher UK inflation, rising energy costs, and resilient economic growth is strengthening the case for a future hike.

UK CPI inflation increased from 2.9% to 3.1% in August, moving further above the Bank's 2% target. Energy prices have become an increasingly important part of the outlook, with oil prices rising sharply amid geopolitical tensions and the Ofgem energy price cap set to increase by a further 4% in October.

NIESR associate economist Charlotte O'Leary stated that 'energy dominates both the news headlines and headline inflation,' adding that these pressures are tightening the purse strings of UK households and reviving concerns over the cost of living.