The Bank of England is widely expected to raise interest rates for the first time in more than three years, with traders predicting an increase from 3.75 percent to 4 percent. The Monetary Policy Committee (MPC) is set to announce its decision on Thursday, November 5.
If confirmed, it would mark the first increase in borrowing costs since August 2023 and could worry some mortgage holders. The move comes as official figures showed the Consumer Prices Index (CPI) inflation rate rose to 3.5 percent in September, the highest level in 11 months.
Energy Prices Drive Inflation
The conflict in the Middle East has pushed inflation further away from the Bank's 2 percent target, with a surge in petrol and diesel prices a major factor. Inflation is expected to rise further this winter after Ofgem's energy price cap increased by 3.6 percent for a typical household on October 1, with a forecast jump of 22 percent in January.
Ellie Henderson, an analyst for Investec, said: "We imagine that many committee members' patience with the recent rise in inflation has worn thin. The longer energy prices remain elevated, the greater the risk that a temporary price shock becomes more permanent; a 'risk management' hike could guard against this."
Economic Indicators in Focus
Alexander Harvey, UK economist for Oxford Economics, said a November rate hike looks to be a "done deal" for the committee, which will be responding to higher oil and gas prices. He noted that two factors have been central to the MPC's decision-making since the outbreak of the conflict in the Middle East: the scale and duration of the energy price shock, and the extent of any second-round inflation effects.
The MPC will also consider that the UK's unemployment rate fell to 4.7 percent in the three months to August, the lowest level in more than a year, and that the economy unexpectedly grew by 0.1 percent in August, suggesting resilience despite pressure on consumer spending and volatility from the Iran war.
