From the Guardian · · 2m
Bank of England holds rates but warns of war-driven rises ahead
The central bank keeps borrowing costs steady at 3.75% while signalling future increases if Middle East conflict pushes inflation higher.
In brief
The central bank keeps borrowing costs steady at 3.75% while signalling future increases if Middle East conflict pushes inflation higher. Interest rates will likely rise from November onwards if energy prices stay volatile, but the Bank isn't acting yet because wage pressures haven't taken hold. Originally reported by…
Bank holds rates steady at 3.75%
The Bank of England's monetary policy committee voted six to three to keep interest rates unchanged, as financial markets had expected.
War could force rates up soon
The Bank warned that prolonged Middle East fighting could dramatically raise the chance of future rate increases to combat inflation.
“the longer this volatility persists, the bigger the impact it will have on inflation”
Energy prices pushing inflation higher
Inflation rose to 3.1% in August as war-driven energy costs hit households. The Bank expects inflation to reach 4% by early next year.
Rate rises likely from November
City traders predict a quarter-point increase in borrowing costs as early as November, with three more rises to 4.75% expected through next year.
No wage spiral yet, so Bank waits
The Bank said there's little evidence of workers and businesses demanding higher pay and prices, so it doesn't need to act on rates immediately.
Fed and ECB already raising rates
The US Federal Reserve raised rates on Wednesday for the first time since 2023, and the European Central Bank recently increased eurozone borrowing costs.
Bank to sell bonds back to Treasury
In a surprise move, the Bank plans to sell 146 billion pounds of government bonds to the Treasury at about 20 billion pounds per year until 2034.
Bond plan needs chancellor approval
The Treasury's Debt Management Office would issue shorter-term debt to cover the buyback. Chancellor John Healey must sign off on the deal next April.
Productivity growth offers budget boost
The Office for National Statistics upgraded its UK productivity growth estimates, providing a positive backdrop as the government prepares next month's budget.
The key point
Interest rates will likely rise from November onwards if energy prices stay volatile, but the Bank isn't acting yet because wage pressures haven't taken hold.
