Bank of England expected to raise rates to 4 percent on Thursday

The Bank of England is expected to raise interest rates on Thursday, November 5, in response to inflation pressure from soaring energy costs. Economists polled by Reuters forecast the bank rate will rise to 4 percent from 3.75 percent, marking the first increase since August 2023.

Governor Andrew Bailey said the central bank cannot wait for conclusive proof of second-round effects, where higher inflation feeds into wage and price setting, or it will act too late. He noted that businesses appear to be absorbing higher costs more than they did in 2022.

“In other words, their hands are increasingly being forced, whether they like it or not.”

Inflation has run hotter than the Bank expected. Consumer prices rose 3.5 percent in the year to September, compared with the central bank’s July forecast of 3 percent. The Bank warned in September that inflation would rise above 4 percent early next year.

The Monetary Policy Committee voted 6-3 to hold rates in September, and members remain divided over whether the drawn-out Iran war makes some second-round effects inevitable.

City AM’s Shadow Monetary Policy Committee, made up of leading economists from industry and academia, urged the Bank to lift rates by 25 basis points to protect credibility. Six of its nine members supported a rise.

However, economists including Kallum Pickering, Vicky Pryce, and Ben Ramanauskas called for rates to remain unchanged. They argued there is little evidence of demand pressures boiling up and that the Bank should look through temporary effects.

Barclays chief UK economist Jack Meaning warned that holding rates risks unsettling expectations and undermining confidence in the Bank, though he said evidence for second-round effects remains weak.