London Daily

Focus on the big picture.
Saturday, Mar 28, 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
Fresh Claims Emerge Over Harry and Meghan’s Australia Visit as Insider Speaks Out
NATO Assessment Indicates UK Defence Spending Has Fallen Below Alliance Average
FTSE 100 Slips as Middle East Tensions Weigh on Investor Sentiment
UK Economy Begins to Feel Early Impact of Iran Conflict as Policy Challenges Intensify
Russian National Jailed in UK After Assault Case Linked to Barron Trump’s Alert
Energy Price Surge Accelerates Shift Away from Fossil Fuels in UK Homes
UK Museums House More Than 260,000 Human Remains, New Report Reveals
Surging UK Gilt Yields Reflect Inflation Pressures and Fiscal Uncertainty
UK Issues Updated Guidance on Children’s Screen Time with Focus on Balance and Wellbeing
UK Migration Figures Show Shifting Trends Across Asylum, Visas and Channel Crossings
UK Watchdog Launches Probe into Five Firms Over Alleged Fake Reviews and Ratings
Jaguar Land Rover Halts Production at UK Plant Amid Supplier Disruption
UK Police Reverse Position, Confirm Arrests Will Resume for Palestine Action Protests
UK Small Businesses Face Europe’s Steepest Cost Pressures, New Survey Reveals
US Envoy Urges UK to Proceed with King’s Visit Amid Diplomatic Sensitivities
FTSE 100 Drops Over One Percent as Middle East Tensions Weigh on Markets
UK CO2 Plant Set to Reopen as Authorities Move to Safeguard Supplies Amid Middle East Tensions
Trump Urges Stronger Defence Investment as He Questions Allied Naval Capabilities
New COVID Variant Detected in UK Raises Concerns Over Vaccine Effectiveness
FTSE Russell Moves to Standardise Free-Float Rules for UK and International Listings
HBO Max Launches in UK and Ireland, Marking Major Step in Global Streaming Expansion
UK Signals Readiness to Seize Russian ‘Shadow Fleet’ Vessels in Escalation of Sanctions Enforcement
Escalating Middle East Conflict Seen as Major Threat to UK Economic Stability
Early Challenges Mark Prince Harry and Meghan’s Australia Visit
UK Government Rejects Cover-Up Claims After Theft of Former PM Aide’s Phone
Cyprus Opens Strategic Talks with UK Over Sovereign Base Areas
UK Faces Risk of Sharp Inflation Surge Despite Stable Pre-Crisis Figures
UK Police Arrest Two Over Suspected Antisemitic Arson as Iran Link Investigated
UK Inflation Holds at Three Percent Ahead of Oil Price Shock from Iran Conflict
UK Fuel Prices Face Upward Pressure as Global Oil Trends Raise Cost Outlook
Girlguiding UK Sets September Deadline for Membership Policy Change Affecting Trans Participants
Germany and UK Accelerate Wind Power Expansion to Strengthen Energy Security
UK Moves to Ban Cryptocurrency Donations to Political Parties Over Foreign Influence Concerns
UK and Turkey Finalise Major Air Defence Agreement Worth Billions
Apple Introduces Mandatory Age Verification for iPhone Users in the UK
Diverging Views Emerge Over Meghan Markle’s Planned Australia Appearance
Trump Signals Frustration with UK Leadership Amid Diverging Approaches to Iran Conflict
UK Government Takes Control of Hunterston B as Landmark Nuclear Decommissioning Begins
UK Public Inflation Expectations Jump Sharply in March, Raising Pressure on Bank of England
UK Ministers Warn Expanded North Sea Drilling Would Deepen Exposure to Global Energy Volatility
Delayed UK Defence Investment Plan Leaves Suppliers Under Severe Financial Strain
Can Iran Strike the UK? Assessing the Real Military Threat as Conflict Escalates
Sanctioned Iranian Banker Linked to Luxury Marbella Villa Through UK Corporate Structure
Casey Bloys Navigates HBO Max UK Launch, Paramount Integration and Industry Buzz Over Netflix Meeting
Iran Conflict Sparks Sharp Turbulence in UK Mortgage Market, Reaching Pandemic-Era Disruption Levels
Major Donor Urges University of Kentucky to Reconsider Mitch Barnhart’s Post-Retirement Role
United Kingdom Moves to Lead International Effort to Reopen Strait of Hormuz
UK Police Investigate Targeted Attack on Jewish Ambulance Vehicles
UK Police Investigate Targeted Attack on Jewish Ambulance Vehicles
Senior UK Advocate Criticises Barnhart Retirement Appointment, Calls for Reconsideration
×