The Bank of England is anticipated to hold interest rates at 3.75% this week, continuing a period of stability since December. This would be the sixth consecutive meeting where the Monetary Policy Committee (MPC) has not altered the Bank Rate.
Despite the expected hold, financial markets are increasingly forecasting future rate hikes. Money markets are now pricing in as many as four quarter-point increases by July next year, which would potentially push the Bank Rate to 4.75%.
This shift in expectations follows stronger economic growth and renewed inflation concerns. Official figures showed the UK economy grew by 0.4% in July, exceeding economists' forecasts. Additionally, Consumer Prices Index (CPI) inflation rose to 2.9% in July, up from 2.6% in June, reaching its highest level since March.
Further inflationary pressure is expected with Ofgem's new energy price cap taking effect in October, which will increase bills by 4% for a typical dual-fuel household. Higher global energy prices are also contributing to concerns about the inflation outlook.
Divisions within the MPC are evident, with Huw Pill, Megan Greene, and Catherine Mann having voted to increase the Bank Rate at the previous meeting. Economists expect these three policymakers to again favour an immediate rise this week.