London Daily

Focus on the big picture.
Wednesday, Mar 11, 2026

Bank of England interest rate decision still on a knife-edge despite rise in inflation

Bank of England interest rate decision still on a knife-edge despite rise in inflation

Analysis: an increase would do nothing to alter the course of rising prices
When Bank of England officials meet next month to discuss interest rates, the betting is that today’s inflation number, showing a forecast-busting 4.2% rise in October, should convince them to respond with an increase in the cost of borrowing.

If they do, the decision might appear inconsistent.

The highest level of annual price increases for a decade was forecast by the Bank of England’s nine-strong monetary policy committee (MPC) when it met earlier this month. The MPC said it envisaged inflation rising to 5% next year – and yet shocked investors by refusing to raise interest rates off the floor.

A month, though, is a long time in world of monetary policy.

There is a sense now that the Bank’s job of maintaining price stability is being undermined by an inflation rate more than double the 2% target set by parliament. A jump in the base rate in December from 0.1% to 0.25% appears to be beyond doubt.

Earlier this week, the governor, Andrew Bailey, told MPs on the Commons Treasury select committee he was “very uneasy” about the rising cost of living and had come close to voting for an increase in borrowing costs.

“We are in the price stability business,” he said.

Previously, Bailey had hinted that “action” would be needed to calm inflation, which he believes could remain stubbornly high unless the Bank uses its main tool to restrict consumer and business spending.

However, the decision remains on a knife-edge. The MPC’s collective view until now has been that the main drivers of inflation this year – higher gas and petrol prices – will prove to be temporary.

While the cost of gas on international energy markets may rise further through the winter, it will fall in the spring, and by the time the cold weather returns in 2022, the expectation is that an orderly queue of gas-laden supertankers will be lining up outside Britain’s ports.

Petrol and diesel prices will likewise tumble next year as Opec countries and other oil producers adjust to a post-pandemic, and hopefully a more climate friendly, level of demand.

Bailey and a majority of the committee may turn this argument on its head should they conclude that the economy’s rapid return to something near its pre-pandemic level of activity is a sign that interest should return to the 0.75% in place back then.

Some members have openly argued that rapidly rising prices through the winter months will convince workers to push for big wage rises, leading to the much-feared wage-price spiral.

Yet there is no sign of wages increasing by the level needed to push up inflation, except in some industries affected by Brexit-related skills shortages.

A rise in interest rates in the UK also has no bearing on the price of gas and petrol, so would do nothing to alter the course of rising prices. It would only give the appearance of doing something.

If the MPC takes a punt on wages spiralling next year, and not just in a few industries but across most of the UK’s 32 million workers, it will be a message that Brexit has seriously damaged the labour market’s ability to respond to rising demand.

If that is the reasoning, it would be more effective for the government to change course and relax visa restrictions than for the Bank of England to raise interest rates.
Newsletter

Related Articles

0:00
0:00
Close
British Airways Suspends UK Repatriation Flights as Middle East Travel Disruption Deepens
US Forces Prepare Ordnance at RAF Fairford as Strategic Bombers Deploy for Middle East Operations
Nigel Farage Faces Criticism After Saying Britain Should Stay Out of Iran War
Landmark UK Trial Begins Over Sony’s PlayStation Store Pricing
UK High Court Rejects Bid to Challenge Britain’s Chagos Islands Agreement With Mauritius
Finnish Duo Triumphs in England’s Annual Wife-Carrying Race, Winning a Barrel of Ale
How U.S. and UK National Security Strategies Are Reshaping the Global Business Landscape
Green Party Gains Momentum as Labour Shifts Toward the Political Centre
Royal Navy Destroyer HMS Dragon Sets Sail for Eastern Mediterranean as Regional Tensions Rise
UK Homebuilder Persimmon Warns Iran Conflict Could Dent Property Buyer Confidence
Roman Abramovich Signals Legal Fight if UK Seeks to Seize Chelsea Sale Funds
UK Ready to Back Emergency Oil Reserve Release as Middle East Conflict Pushes Prices Higher
Study of 40,000 Articles Sparks Debate Over Alleged Anti-Muslim Bias in UK Media
US and UK Army Chiefs Strengthen Cooperation on the Future of Armored Warfare
Britain’s Search for the Next ARM Intensifies as Startups and Investors Target the Semiconductor Frontier
Three US Strategic Bombers Arrive at RAF Fairford as Iran Conflict Intensifies
Cancer Death Rates in the UK Fall to the Lowest Level on Record
UK Government Bond Yields Retreat Slightly After Sharp Spike Triggered by Middle East Conflict
UK Chancellor Warns Middle East War Could Push Inflation Higher
UK Prime Minister Warns Iran Conflict Could Drive Up Prices and Threaten Economic Stability
Trump Declines UK Offer to Deploy Aircraft Carriers to Middle East Amid Iran Conflict
Prince Harry and Meghan Markle to Return to Australia After Seven Years for Philanthropic and Business Engagements
UK Government Signals Independence From Washington as Cooper Says Britain Does Not Agree With Trump on Every Issue
UK Experts Warn AI Chatbots Are Fueling Surge in Claims of Organised ‘Satanic’ Ritual Abuse
UK Political Parties Divided Over Strategy as Iran Conflict Reshapes Foreign Policy Debate
Britain Discloses Secret Military Repair Hubs Operating Inside Ukraine
Trump Says US No Longer Needs UK Carrier Support After Delayed Offer Amid Iran Conflict
Why Britain Has Become Involved in the US-Israel Military Campaign Against Iran
UK Gas Storage Falls to Under Two Days as Iran Conflict Jolts Global Energy Markets
UK Warned to Brace for Economic Shock as Iran War Drives Global Energy Price Surge
Starmer and Trump Hold First Call After Public Dispute Over Iran Conflict
UK Dentists Returned £1.3 Billion to Government as Shift Toward Private Care Accelerates
Expert Warns UK Must Build Emergency Food Stockpiles to Prepare for Climate Shocks or War
UK Plans Charter Flight to Evacuate British Nationals from Gulf as Regional Conflict Disrupts Air Travel
Families of Zimbabwe’s Liberation Fighters Call on Britain to Help Locate Skulls Taken During Colonial War
Iran’s Ambassador Warns Britain to ‘Be Very Careful’ Over Deeper Role in Expanding Middle East War
UK Military Leadership Defends Britain’s Defensive Role in Expanding Middle East Conflict
Four U.S. Strategic Bombers Arrive in Britain as Iran War Intensifies
Soham Murderer Ian Huntley Dies After Violent Attack in High-Security Prison
UK Lawmakers and Experts Condemn Scale of Overseas Human Remains Held in British Museums
Royal Navy Aircraft Carrier HMS Prince of Wales Placed on Standby for Potential Deployment
United Kingdom Confirms U.S. Military Using British Bases for Operations Targeting Iranian Missile Sites
Starmer Defends UK Role in Iran Conflict After Renewed Criticism from President Trump
Blue Owl Reveals £36 Million Exposure After Collapse of UK Lender Serving Wealthy Clients
UK Asylum Reform Plan Triggers Fierce Debate Over Border Control and Humanitarian Impact
US Stealth Bombers Head to UK Base as Trump Issues Stark Warning to Iran
UK Deputy Prime Minister Says Legal Case Could Exist for British Strikes on Iranian Missile Sites
Investigators Link Mysterious Parcel Fires Across Europe to Russian Intelligence Operation
Debate Intensifies Over Britain’s Legal Justification for US Military Operations Launched From UK Bases
Britain Faces Heightened Energy Price Risks as Iran-Linked Tensions Threaten Global Oil and Gas Supplies
×