Bank of England weighs interest rate decision amid Middle East conflict and rising inflation
The Bank of England is expected on Thursday to hold its base interest rate at 3.75% for a sixth straight meeting, even as Middle East-driven oil prices and accelerating inflation leave analysts divided on how long that pause can last.
A decision expected, but not certain
The Bank of England will announce its latest interest rate decision on Thursday at 12:00 BST. According to the BBC, the nine-member Monetary Policy Committee (MPC) is widely expected to keep the benchmark Bank rate unchanged at 3.75% for a sixth consecutive meeting, though economists are split on whether a rate hike will be needed before the end of the year.
Middle East conflict and oil prices
The decision comes against the backdrop of the prolonged Iran conflict and its effect on global energy prices. Oil has traded above $100 a barrel since 9 September, with little sign of a lasting truce. Bank governor Andrew Bailey had previously warned that if the conflict continues and oil stays above $100, "the odds are that interest rates will have to go up higher."
Inflation accelerates
Data released Wednesday showed UK Consumer Prices Index (CPI) inflation rose to 3.1% in August from 2.9% in July — the highest rate in six months, driven by higher petrol, diesel and airfare costs. The Bank targets inflation of 2%.
Other central banks have already moved
The European Central Bank recently raised its rate to 2.5%, also citing the Middle East conflict and warning inflation would stay well above target for some time. On Wednesday, the US Federal Reserve raised its rate to a range of 3.75%-4% — according to the BBC, its first increase in more than three years. That means a hold by the Bank of England would make it something of an outlier among major central banks.
Similar concerns about conflict- and trade-driven inflation are echoed elsewhere: the Bank of Canada held its rate at 2.25% for a seventh straight meeting, citing both Middle East tensions and new trade tariffs among its top risks, while Canadian annual inflation held at 3% in August.
Impact on households
Even before Thursday's announcement, major UK lenders have been raising new fixed mortgage rates in anticipation of a possible future hike. The average two-year fixed residential mortgage rate has hit 5.83%, its highest since 22 May, while the five-year average reached 5.87%, its highest since 6 November 2023, according to Moneyfacts. Brokers advise borrowers nearing the end of a fixed deal to start shopping around early.
Former MPC member Dame DeAnne Julius told the BBC there was a "reasonable chance" of a rate rise, but said the UK economy was not deteriorating — unemployment remains steady and growth is "quite a bit better than it has been."
