London:The Bank of England is poised to raise interest rates on Thursday for the first time in over three years, aiming to tackle the inflation surge fueled by the Iran war. Economists anticipate that the bank's nine-member Monetary Policy Committee will increase the key interest rate by 0.25 percentage points, raising it to 4% from the current 3.75%. This would mark the first rate hike since August 2023.
According to United News of Bangladesh, the Bank of England is facing mounting pressure as inflation reached an 11-month high of 3.5% in September, significantly above the bank's 2% target. The markets are also expecting further rate increases in 2027, with inflation predicted to rise in the following months.
The recent inflation surge is primarily driven by higher fuel costs due to the Iran war and disruptions in shipping through the Strait of Hormuz, leading to tighter global oil and gas supplies. Ellie Henderson, an economist at Investec, noted that the patience of many committee members with the inflation rise is wearing thin and warned that sustained high energy prices could transform a temporary price shock into a lasting issue.
In conjunction with the anticipated rate increase, the bank will release its quarterly economic forecasts, including projections for inflation and economic growth. While higher borrowing costs are intended to curb spending and inflation, they can also impede economic growth. The current outlook remains uncertain, largely due to ongoing developments related to the Iran war.
Energy prices have seen a sharp decline following the Republican Party's significant losses in the US midterm elections. If oil and gas prices remain lower in the upcoming weeks, the expected peak in inflation might be less severe, potentially reducing the need for further rate hikes. The US Federal Reserve and the European Central Bank have also raised interest rates recently in response to war-related inflationary pressures, with their future policy decisions likely influenced by energy prices.
Prior to the escalation with Iran, UK interest rates had been decreasing from a 15-year high of 5.25%. The interest rate environment has shifted since the United States and Israel attacked Iran on February 28.