Interest rates hold expected but Bank of England facing tough choices — SkimNews
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- Bank of England MPC is expected to hold the Bank rate at 3.75% for a sixth consecutive meeting, with the decision due at 12:00 BST Thursday, though analysts are split on whether a hike comes before year-end.
- UK CPI inflation rose to 3.1% in August from 2.9% in July, a six-month high driven by rises in petrol, diesel, and airfares, with economists warning it has not yet peaked as energy costs feed through to food and fuel.
- Governor Andrew Bailey warned in July that if oil prices stayed above $100 a barrel and the conflict continued, "the odds are that interest rates will have to go up higher" — oil crossed $100 on 9 September and has remained there.
- Global central banks have moved in the same direction: the US Federal Reserve raised its rate to 3.5%–3.75% on Wednesday, while the European Central Bank hiked to 2.5%, citing the Middle East conflict and warning inflation would stay "well above" target.
- UK mortgage costs are already rising before the decision, with the average two-year fixed residential rate at 5.77% — its highest since 11 May — and the five-year fixed at 5.83%, its highest since 8 November 2023, according to Moneyfacts.
- Savers may see more generous returns on deposits, but the spending power of those savings risks being eroded by the rising cost of living, Nottingham Building Society's Harriet Guevara said.
- MPC members face a balancing act: hiking risks pressuring employers and lowering job prospects, while holding risks letting inflation drift further from the 2% target.
Why it matters: UK households are already absorbing higher borrowing costs — the average two-year fixed mortgage rate is at its highest since May at 5.77% — because lenders are repricing upward in anticipation of further rate action. The MPC's expected hold masks a fragile equilibrium: CPI at 3.1% is well above target, oil has held above $100 since 9 September, and both the Fed (3.5%–3.75%) and ECB (2.5%) have already hiked, meaning any escalation in the Middle East conflict could force a BoE pivot before year-end.
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