London Daily

Focus on the big picture.
Friday, Jun 20, 2025

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
16 Billion Login Credentials Leaked in Unprecedented Cybersecurity Breach
Senate hearing on who was 'really running' Biden White House kicks off
Iranian Military Officers Reportedly Seek Contact with Reza Pahlavi, Signal Intent to Defect
FBI and Senate Investigate Allegations of Chinese Plot to Influence the 2020 Election in Biden’s Favor Using Fake U.S. Driver’s Licenses
Vietnam Emerges as Luxury Yacht Destination for Ultra‑Rich
Plans to Sell Dutch Embassy in Bangkok Face Local Opposition
China's Iranian Oil Imports Face Disruption Amid Escalating Middle East Tensions
Trump's $5 Million 'Trump Card' Visa Program Draws Nearly 70,000 Applicants
DGCA Finds No Major Safety Concerns in Air India's Boeing 787 Fleet
Airlines Reroute Flights Amid Expanding Middle East Conflict Zones
Elon Musk's xAI Seeks $9.3 Billion in Funding Amid AI Expansion
Trump Demands Iran's Unconditional Surrender Amid Escalating Conflict
Israeli Airstrike Targets Iranian State TV in Central Tehran
President Trump is leaving the G7 summit early and has ordered the National Security Council to the Situation Room
Taiwan Imposes Export Ban on Chips to Huawei and SMIC
Israel has just announced plans to strike Tehran again, and in response, Trump has urged people to evacuate
Netanyahu Signals Potential Regime Change in Iran
Juncker Criticizes EU Inaction on Trump Tariffs
EU Proposes Ban on New Russian Gas Contracts
Analysts Warn Iran May Resort to Unconventional Warfare
Iranian Regime Faces Existential Threat Amid Conflict
Energy Infrastructure Becomes War Zone in Middle East
UK Home Secretary Apologizes Over Child Grooming Failures
Trump Organization Launches 5G Mobile Network and Golden Handset
Towcester Hosts 2025 English Greyhound Derby Amid Industry Scrutiny
Gary Oldman and David Beckham Knighted in King's Birthday Honours
Over 30,000 Lightning Strikes Recorded Across UK During Overnight Storms
Princess of Wales Returns to Public Duties at Trooping the Colour
Red Arrows Use Sustainable Fuel in Historic Trooping the Colour Flypast
Former Welsh First Minister Addresses Unionist Concerns Over Irish Language
Iran Signals Openness to Nuclear Negotiations Amid Ongoing Regional Tensions
France Bars Israeli Arms Companies from Paris Defense Expo
King Charles Leads Tribute to Air India Crash Victims at Trooping the Colour
Jack Pitchford Embarks on 200-Mile Walk to Support Stem Cell Charity
Surrey Hikers Take on Challenge of Climbing 11 Peaks in a Single Day
UK Deploys RAF Jets to Middle East Amid Israel-Iran Tensions
Two Skydivers Die in 'Tragic Accident' at Devon Airfield
Sainsbury's and Morrisons Accused of Displaying Prohibited Tobacco Ads
UK Launches National Inquiry into Grooming Gangs
Families Seek Closure After Air India Crash
Gold Emerges as Global Safe Haven Amid Uncertainty
Trump Reports $57 Million Earnings from Crypto Venture
Trump's Military Parade Sparks Concerns Over Authoritarianism
Nationwide 'No Kings' Protests Challenge Trump's Leadership
UK Deploys Jets to Middle East Amid Rising Tensions
Trump's Anti-War Stance Tested Amid Israel-Iran Conflict
Germany Holds First Veterans Celebration Since WWII
U.S. Health Secretary Dismisses CDC Vaccine Advisory Committee
Minnesota Lawmaker Melissa Hortman and Husband Killed in Targeted Attack; Senator John Hoffman and Wife Injured
Exiled Iranian Prince Reza Pahlavi Urges Overthrow of Khamenei Regime
×