Bank of England holds 3.75% rate, warns on hike

The Bank of England held its benchmark interest rate at 3.75 percent on Thursday, but warned that a rise could be needed if the Middle East war keeps pushing up energy prices.

Governor Andrew Bailey said higher energy costs had so far had a limited effect on price and wage setting in the UK.

“But the longer this volatility persists, the bigger the impact it will have on inflation, and the more likely it is we will need to raise” the benchmark rate, Bailey said.

Three members of the Bank of England’s Monetary Policy Committee voted to increase the rate by 0.25 percentage points to 4 percent. Bailey joined five other members in voting for no change, minutes of the meeting showed.

The decision left the rate unchanged for a sixth consecutive meeting.

UK inflation rose to 3.1 percent in August, above the central bank’s 2 percent target. The Bank of England expects price pressures to rise further and projected inflation reaching 4 percent by the first quarter of 2027.

“If the conflict in the Middle East persists for an extended period, as appears to be the case, and the risk of second-round effects emerging increases, it is likely that policy may have to tighten,” the bank said.

The decision came after the Federal Reserve raised US interest rates on Wednesday for the first time since 2023, citing surging inflation. The European Central Bank raised rates last week for the second time this year, and the Bank of Japan is forecast to lift borrowing costs on Friday.