Interest rates held but Bank signals rise if energy prices stay high — SkimNews
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- Bank of England held its main interest rate at 3.75% for the sixth consecutive decision, with 6 of 9 MPC members voting to hold and 3 — including chief economist Huw Pill — voting to raise to 4%
- Governor Andrew Bailey said energy price volatility from the US-Israel war with Iran made further rate rises more likely, and that rates could only fall with "an end of conflict in the Middle East" and energy prices returning to pre-conflict levels
- The Bank raised its inflation forecast to "slightly above 4%" for early next year and warned the January household energy price cap would "rise substantially further," though it lowered its food inflation forecast to 4% from a previous 6-7%
- The Bank overhauled its quantitative tightening programme, pausing annual UK government bond sales and instead offloading its £488bn stockpile over eight years, prompting the 30-year gilt yield to fall from 5.86% to 5.75% on the announcement
- The Bank upgraded UK GDP growth for July–September from 0.1% to 0.4%, saying the economy had been "more resilient" than expected, even as August inflation sat at 3.1% — well above the 2% target for nearly two years
- Major UK lenders have already raised fixed mortgage rates in anticipation: the average two-year fixed rate hit 5.77% (highest since 11 May) and the five-year reached 5.83% (highest since 8 November 2023), per Moneyfacts
Why it matters: The vote split — three hawks including chief economist Huw Pill — shows the hold is fragile, and Bailey explicitly tied any eventual cut to a Middle East ceasefire, handing UK borrowers' mortgage costs directly to geopolitics. With the BoE forecasting inflation above 4% into early next year and the January energy price cap set to rise substantially, households refinancing off cheap fixes like Andy Pargeter's 1.19% deal face hundreds of pounds in added monthly costs before relief arrives.
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