Bank of England set to raise rates to 4 percent for first hike since 2023, MPC confronts inflation driven by war and energy caps, America's central bank moves the opposite direction

Images

independent.co.uk

standard.co.uk

The Bank of England is widely expected to raise its benchmark rate to 4 percent on Thursday, the first increase in borrowing costs since August 2023. Traders in financial markets price the move from 3.75 percent, and economists treat it as settled before the Monetary Policy Committee has met.

Official figures put Consumer Prices Index inflation at 3.5 percent in September, the highest in 11 months and well adrift of the Bank's 2 percent target. The conflict in the Middle East has done the pushing: a surge in petrol and diesel prices is the main driver, and Ofgem's energy price cap rose 3.6 percent for a typical household on October 1 with a further 22 percent jump forecast for January. Alexander Harvey of Oxford Economics called a November hike a "done deal" and said two factors now dominate the committee's thinking — the scale and duration of the energy shock, and the extent of second-round effects as elevated energy costs feed into shop prices. Ellie Henderson of Investec said producers may "not be willing or able to shoulder the burden of higher energy prices for much longer", and framed the hike itself as risk management: the longer prices stay elevated, the greater the chance a temporary shock becomes permanent.

The committee is not deciding in a vacuum. The UK labour market tightened to 4.7 percent unemployment in the three months to August, output unexpectedly grew 0.1 percent in August, and markets expect further hikes into 2027. Mortgage holders face the squeeze.

Meanwhile the US Federal Reserve raised rates last month for the first time in three years — in the opposite policy direction the markets had spent most of this year pricing. Two central banks, one inflation target, and a war in the Gulf deciding which of them gets to hold it.