London Daily

Focus on the big picture.
Monday, Feb 02, 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
Starmer Arrives in Shanghai to Promote British Trade and Investment
Harry Styles, Anthony Joshua and Premier League Stars Among UK’s Top Taxpayers
New Epstein Files Include Images of Former Prince Andrew Kneeling Over Unidentified Woman
Starmer Urges Former Prince Andrew to Testify Before US Congress About Epstein Ties
Starmer Extends Invitation to Japan’s Prime Minister After Strategic Tokyo Talks
Skupski and Harrison Clinch Australian Open Men’s Doubles Title in Melbourne
DOJ Unveils Millions of Epstein Files, Fueling Global Scrutiny of Elite Networks
France Begins Phasing Out Zoom and Microsoft Teams to Advance Digital Sovereignty
China Lifts Sanctions on British MPs and Peers After Starmer Xi Talks in Beijing
Trump Nominates Kevin Warsh as Fed Chair to Reorient U.S. Monetary Policy Toward Pro-Growth Interest Rates
AstraZeneca Announces £11bn China Investment After Scaling Back UK Expansion Plans
Starmer and Xi Forge Warming UK-China Ties in Beijing Amid Strategic Reset
Tech Market Shifts and AI Investment Surge Drive Global Innovation and Layoffs
Markets Jolt as AI Spending, US Policy Shifts, and Global Security Moves Drive New Volatility
U.S. Signals Potential Decertification of Canadian Aircraft as Bilateral Tensions Escalate
Former South Korean First Lady Kim Keon Hee Sentenced to 20 Months for Bribery
Tesla Ends Model S and X Production and Sends $2 Billion to xAI as 2025 Revenue Declines
China Executes 11 Members of the Ming Clan in Cross-Border Scam Case Linked to Myanmar’s Lawkai
Trump Administration Officials Held Talks With Group Advocating Alberta’s Independence
Starmer Signals UK Push for a More ‘Sophisticated’ Relationship With China in Talks With Xi
Shopping Chatbots Move From Advice to Checkout as Walmart Pushes Faster Than Amazon
Starmer Seeks Economic Gains From China Visit While Navigating US Diplomatic Sensitivities
Starmer Says China Visit Will Deliver Economic Benefits as He Prepares to Meet Xi Jinping
UK Prime Minister Starmer Arrives in China to Bolster Trade and Warn Firms of Strategic Opportunities
The AI Hiring Doom Loop — Algorithmic Recruiting Filters Out Top Talent and Rewards Average or Fake Candidates
Amazon to Cut 16,000 Corporate Jobs After Earlier 14,000 Reduction, Citing Streamlining and AI Investment
Federal Reserve Holds Interest Rate at 3.75% as Powell Faces DOJ Criminal Investigation During 2026 Decision
Putin’s Four-Year Ukraine Invasion Cost: Russia’s Mass Casualty Attrition and the Donbas Security-Guarantee Tradeoff
Wall Street Bets on Strong US Growth and Currency Moves as Dollar Slips After Trump Comments
UK Prime Minister Traveled to China Using Temporary Phones and Laptops to Limit Espionage Risks
Google’s $68 Million Voice Assistant Settlement Exposes Incentives That Reward Over-Collection
Kim Kardashian Admits Faking Paparazzi Visit to Britney Spears for Fame in Early 2000s
UPS to Cut 30,000 More Jobs by 2026 Amid Shift to High-Margin Deliveries
France Plans to Replace Teams and Zoom Across Government With Homegrown Visio by 2027
Trump Removes Minneapolis Deportation Operation Commander After Fatal Shooting of Protester
Iran’s Elite Wealth Abroad and Sanctions Leakage: How Offshore Luxury Sustains Regime Resilience
U.S. Central Command Announces Regional Air Exercise as Iran Unveils Drone Carrier Footage
Four Arrested in Andhra Pradesh Over Alleged HIV-Contaminated Injection Attack on Doctor
Hot Drinks, Hidden Particles: How Disposable Cups Quietly Increase Microplastic Exposure
UK Banks Pledge £11 Billion Lending Package to Help Firms Expand Overseas
Suella Braverman Defects to Reform UK, Accusing Conservatives of Betrayal on Core Policies
Melania Trump Documentary Sees Limited Box Office Traction in UK Cinemas
Meta and EssilorLuxottica Ray-Ban Smart Glasses and the Non-Consensual Public Recording Economy
WhatsApp Develops New Meta AI Features to Enhance User Control
Germany Considers Gold Reserves Amidst Rising Tensions with the U.S.
Michael Schumacher Shows Significant Improvement in Health Status
Greenland’s NATO Stress Test: Coercion, Credibility, and the New Arctic Bargaining Game
Diego Garcia and the Chagos Dispute: When Decolonization Collides With Alliance Power
Trump Claims “Total” U.S. Access to Greenland as NATO Weighs Arctic Basing Rights and Deterrence
Air France and KLM Suspend Multiple Middle East Routes as Regional Tensions Disrupt Aviation
×