By Islam El-Sakka
Bank of England expected to raise interest rates to 4% on Thursday, the first hike in over three years, as policymakers combat rising inflation.
Market Expectations
Financial markets predict the Monetary Policy Committee will increase the benchmark rate from 3.75% to 4%, marking the first increase since August 2023. The move could squeeze mortgage holders.
Inflation Drivers
Official data showed Consumer Prices Index inflation rose to 3.5% in September, the highest in 11 months, driven by higher petrol and diesel prices linked to the Middle East conflict. Ofgem’s energy price cap rose 3.6% on October 1 and is forecast to jump a further 22% in January, adding to price pressures.
Analyst Views
Investec analyst Ellie Henderson said many MPC members’ patience with rising inflation has worn thin, and a “risk management” hike could guard against temporary energy shocks becoming permanent. She warned producers may not shoulder higher energy costs much longer, potentially pushing up shop prices.
Oxford Economics UK economist Alexander Harvey called a November rate hike a “done deal,” citing higher oil and gas prices. He said the scale and duration of the energy price shock and second-round effects will dominate the rate outlook. Markets expect further hikes into 2027.
Economic Context
The MPC will also consider that UK unemployment fell to 4.7% in the three months to August, the lowest in over a year, and the economy grew 0.1% in August, showing resilience despite consumer spending pressures and volatility from the Iran war. The US Federal Reserve also raised rates last month for the first time in three years.
