UK interest rates expected to hold as BoE faces tough choices
The Bank of England's Monetary Policy Committee meets to keep the benchmark rate at 3.75% for a sixth consecutive meeting as inflation rises to 3.1%.
Stock photo for illustration only, not from the actual event
- The Bank of England (BoE) is widely expected to keep its benchmark interest rate at 3.75% this Thursday.
- August inflation rose to 3.1%, marking a six-month high driven by Middle East conflicts and energy costs.
- Crude oil prices remaining above $100 per barrel continue to fuel higher transportation and consumer costs.
- Mortgage brokers advise borrowers whose fixed terms are ending to secure rates early amid rising costs.
The nine members of the Bank of England's Monetary Policy Committee (MPC) are set to announce their latest interest rate decision at 12:00 BST on Thursday, with widespread expectations that borrowing costs will remain unchanged.
Despite mounting pressures from increasing global energy prices and escalating conflicts in the Middle East, economists anticipate that the MPC will hold the benchmark Bank rate at 3.75% for the sixth consecutive meeting.
Stock photo for illustration only, not from the actual event
However, analysts remain divided on whether borrowing costs will need to climb further before the end of the year, as policymakers carefully balance the necessity of subduing inflation against the health of the wider economy and labor market.
Official figures released on Wednesday revealed that the Consumer Prices Index (CPI) measure of inflation climbed to 3.1% in August, up from 2.9% in July and reaching its highest rate in six months. The acceleration was propelled by surging petrol, diesel, and airfare costs, underpinned by oil prices staying above the $100 threshold since September 9.
"If we get a continuation of this conflict going on and oil prices stay above $100 a barrel... the odds are that interest rates will have to go up higher."
Andrew Bailey, Bank of England Governor
The difficult dilemma facing the Bank of England mirrors a broader global trend among central banks attempting to navigate external supply shocks. Recently, both the European Central Bank (ECB) and the US Federal Reserve opted to raise their respective interest rates in response to persistent inflationary pressures and heightened energy expenses stemming from geopolitical tensions.
For households and businesses, the anticipation of higher rates has already prompted major lenders to reprice and increase the cost of new fixed-rate mortgages over the past few days.
Andrew Montlake, chief executive of mortgage broker Coreco, noted that the latest data demonstrates inflation has not been fully subdued, urging borrowers to take proactive steps.
- The average two-year fixed residential mortgage rate reached 5.77%, its highest level since May 11.
- The average five-year fixed mortgage rate climbed to 5.83%, marking the highest point since November 8, 2023.
- Borrowers approaching the end of their fixed deals are advised to begin searching early and secure options.
Source: BBC Business
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