Bank holds interest rate but hints at likely rise ahead – Daily Business

Interest rates have been held at 3.75% for the sixth time in a row, though Bank of England governor Andrew Bailey has indicated that a rise in prospect.

Despite rising inflation and decisions by other central banks to lift the cost of borrowing. the Bank of England’s monetary policy committee voted by a majority of 6–3 to maintain the rate, the same split as at the previous meeting. Three members voted to increase Bank Rate by 0.25 percentage points to 4%.

The decision was widely expected by economists even though the seven-month long conflict in the Middle East has driven up energy prices and stoked inflation to 3.1%.

Inflation has been above the Bank of England’s 2% target for nearly two years.

Mr Bailey said: “So far, higher global energy costs have had a limited effect on price and wage setting in the UK. 

“But the longer this volatility persists, the bigger the impact it will have on inflation, and the more likely it is we will need to raise Bank Rate to ensure that inflation falls back to our 2% target.”

On Wednesday, the US Federal Reserve announced its first hike in three years while the European Central Bank has raised rates twice since June.

Susannah Streeter, chief investment strategist at Wealth Club, said: “Inflation is the fever central bankers want to bring down, but the Bank of England is holding off administering the bitter medicine of an interest rate hike.

“However, the longer the war with Iran continues to rage and keeps crude and gas prices elevated, the greater the chances of a hike later this year and next, especially if data shows consumer price inflation continues to rise.”

Alpesh Paleja, CBI deputy chief economist, said: “For now, we expect interest rates to remain at 3.75% for the rest of the year. But this announcement suggests that the case for staying on hold is weakening, especially if energy prices remain high or rise further.

“As a result, the Bank will be watching energy prices, firms’ pricing decisions and next year’s wage settlements particularly closely. It will also keep one eye on the forthcoming Budget, while recognising that the Chancellor has little room for a significant fiscal easing.”