The Bank of England has kept its interest rates on hold, with its Monetary Policy Committee (MPC) voting by a majority of six to three to maintain the key base rate at 3.75%. This decision comes amid growing concerns over inflation, which the Bank warned could reach 4% by early next year, potentially leading to a fresh cost of living crisis for households.
The Bank highlighted that the ongoing conflict in the Middle East is intensifying, contributing to a surge in global energy prices. Governor Andrew Bailey stated that while higher global energy costs have had a limited effect on UK price and wage setting so far, prolonged volatility could necessitate future rate increases to bring inflation back to the 2% target.
In a separate development, the Bank announced a plan to sell £146bn of UK government bonds directly to the Treasury. This unexpected move, which requires agreement from the Chancellor, aims to avoid market turbulence and will see bonds sold at a pace of approximately £20bn a year until 2034 as part of its quantitative tightening programme.
Official figures released on Wednesday showed that UK inflation rose to 3.1% in August, up from 2.9% in July. This increase was attributed to escalating hostilities in the Middle East, which drove up the average price of petrol and diesel by almost a quarter.