The Bank of England has kept interest rates unchanged at 3.75%, despite inflation rising to a five-month high and mounting pressure from higher energy prices.
The Monetary Policy Committee voted 6–3 to hold Bank Rate, with three members backing a quarter-point increase to 4%. It marks the sixth consecutive meeting at which rates have remained unchanged.
UK inflation increased to 3.1% in August from 2.9% in July, with higher fuel and energy costs linked to the Iran conflict driving much of the increase. Some forecasts suggest inflation could climb towards 4.5% by January if energy prices remain elevated.
Governor Andrew Bailey warned that further rate increases are becoming more likely if the energy shock persists.
He said higher global energy costs have so far had only a limited effect on wider UK price and wage setting, but added that the longer the disruption continues, the greater the risk that inflation becomes embedded.
The decision leaves the Bank of England taking a more cautious approach than the US Federal Reserve and European Central Bank, which have both raised rates this month.
For markets, Bailey’s warning is likely to keep expectations of a possible November rate increase firmly in focus. Persistent energy-driven inflation could push gilt yields and sterling higher while increasing pressure on rate-sensitive sectors including housebuilders, property and consumer stocks.
