London Daily

Focus on the big picture.
Thursday, Sep 03, 2026

Bank of England on “collision course” with City over inflation and interest rates

Bank of England on “collision course” with City over inflation and interest rates

Some in the Square Mile want the Bank to move much more quickly as the economy recovers
The Bank of England looks increasingly at odds with the City over inflation and interest rates.

Some think the Old Lady of Threadneedle Street is on a collision course with the Square Mile, which fears rate setters are behind the economic curve.

This week the Bank’s Monetary Policy Committee meets to discuss interest rates and quantitative easing. No move in rates from record lows of 0.1% is remotely likely – it would be a shock if there were a shift.

And the Bank will probably hold its QE policy at £895 billion, ignoring calls from outgoing chief economist Andy Haldane to cut it by £50 billion.

Haldane has warned of the “beast of inflation” and thinks heat needs taking out of the economy right now.

The City is keen to at least see some sense of direction from the Bank about whether it might move interest rates before the US Federal Reserve does.

Inflation just hit 2.1%, going over the Bank of England’s 2% target for the first time in many months. Moreover, economists noted how quickly it seems to be rising, jumping from 1.5% previously.

Some think the Bank is too sanguine about inflation and should move interest rates up more quickly to head it off. So far, the Bank’s view – Haldane aside – has been that the recovery isn’t sufficiently embedded to take the risk of dampening consumer and business spending.

ING said in a note: “A recent speech by a normally-dovish committee member has sparked a debate on whether the Bank of England will hike rates in 2022, ahead of the Fed. We wouldn’t rule this out, though for now we’re in the camp looking for the first move in early 2023. Either way, we suspect policymakers will be keen to avoid offering new hints at Thursday’s meeting.”

The normally-dovish MPC member was Gertjan Vlieghe, who said last month that if the labour market proves stronger than expected rates could do up sooner than the City realises. Since then, most signs have employment – and most crucially, pay, well on the up.

The Bank of Canada is already talking about a rate hike in 2022, something that may give it first mover advantage among major economies emerging from the pandemic.

Last week the Fed was also hawkish, with observers now predicting it might move rates before the market expects.

Antoine Bouvet at ING said: “In reality, we don’t think the Bank will say anything particularly new on the timing of rate hikes at this next meeting…For now, we’re in the camp looking for the first-rate hike in 1Q23. We certainly wouldn’t rule out an earlier move though. Possible triggers could include a more rapid unwinding of household savings, given the economic outlook is particularly sensitive to even small percentage changes in the amount of the savings stockpile that is spent (the BoE assumes roughly 10%). Wage growth is also key, and there are already anecdotal reports of firms facing shortages of staff in hospitality, though our feeling is that this is likely to prove temporary.”

So the consensus remains that inflation spikes will be short-lived, but interestingly even economists sure of that are increasing their predictions for how high it will go.

Capital Economics now says it will peak at 2.9% later this year, up from a 2.6% forecast previously.

Even if this turns out to be right, there is a growing view that the Bank should at least signal that the crisis is past by moving rates up from extraordinary lows of 0.1%.

A move to 0.25% or 0.5% would still leave borrowing costs extremely low. If further economic woes emerge, the Bank would at that point at least have something to cut.

The MPC rules on Thursday. The City is watching with more than usual interest.
Newsletter

Related Articles

0:00
0:00
Close
UK Marks Merchant Navy Day With Tribute to Civilian Seafarers
Burnham Pays Tribute to Two Police Officers Killed on Duty in Northern England
Booking.com Left Fake Downing Street Listing Online for Two Months, Which Says
Burnham and Macron to Review UK-France Cooperation on Channel Crossings
UK Business Confidence Improves Slightly but Investment Concerns Persist
Burnham Faces Pressure Over Future North Sea Oil and Gas Licences
Burnham Pushes Wider English Devolution Through ‘Number Ten North’
British Chambers of Commerce Raises 2026 UK Growth Forecast to 1%
Keir Starmer Resigns as Holborn and St Pancras MP, Triggering By-Election
UK Chancellor Faces Tighter Budget Headroom as Long-Term Borrowing Costs Rise
UK Government Weighs Thames Water Nationalisation as Financial Crisis Deepens
Prime Minister Andy Burnham Faces First Commons Questions Over Tax and Spending Plans
Eleven British Seafarers Receive Merchant Navy Medal
Which? Creates Fake 10 Downing Street Rental Listing to Expose Booking.com Vetting Weaknesses
BP Appoints New Chairman in Effort to Stabilise Leadership
Aberdeen Sells Hydrogen Bus Fleet at Heavy Loss After Green Transport Experiment
UK Records Hottest Summer on Record as Climate Change Intensifies Extreme Heat
Scotland Pledges to End Temporary Accommodation for Children and Build 111,000 Affordable Homes
DNO Agrees $396 Million Deal to Acquire Capricorn Energy
Uber and Wayve Launch UK’s First Supervised Autonomous Ride-Hailing Service in London
Britain Expected to Avoid New US Tariffs Targeting European Union
Middle East Conflict Pushes UK Energy Costs Higher and Revives Inflation Concerns
UK Growth Forecast Cut to 1% Through 2027 as Youth Unemployment Is Projected to Rise
Andy Burnham Links Weak UK Growth to Brexit in First Full Commons Session as Prime Minister
Keir Starmer Resigns as MP, Triggering Holborn and St Pancras By-Election
UK Business Confidence Improves but Remains Deeply Negative
Aberdeen Hydrogen Bus Sale Recovers Just Six Pence for Every Pound Invested
Which? Exposes Booking.com Verification Failures With Fake 10 Downing Street Listing
British Business Bank Invests Up to £46 Million in Deep-Tech Startup Fund
Scottish Government Puts Violence Against Women at Center of Legislative Program
FCA Eases UK IPO Rules to Strengthen London’s Listing Market
UK Likely to Avoid Next US Tariff Measures as Washington Targets EU
Macron Visits UK for Bayeux Tapestry Exhibition and Border Security Talks
British Chambers of Commerce Cuts UK Growth Outlook to 1% for 2026 and 2027
Keir Starmer Resigns as MP for Holborn and St Pancras, Triggering By-Election
Prime Minister Andy Burnham Unveils Devolution and Cost-of-Living Agenda
UK Borrowing Costs Surge as 30-Year Gilt Yield Reaches 5.88%
Cleveland Police Receive £2 Million to Tackle Serious Crime in Middlesbrough
Number of Young People in England Without a Close Friend Reaches Record Level
Five Arrested After Newborn Baby Dies From Stab Wounds in Sheffield
Nigel Farage Faces Questions Over Reported Second Parliamentary Standards Investigation
UK Retirement Funding Requirement Rises by £64,000 Compared With 2021
UK House Prices Rise for First Time Since April, Nationwide Says
FCA Chief Faces Allegations of Intimidating Consumer Group Over £9 Billion Car Loan Inquiry
Scottish Government Presses Ahead With Cap on Essential Food Prices
Burnham Government Moves to Overhaul Early Prison Release Scheme
UK Records Hottest Summer on Record in 2026, Met Office Says
UK Government Announces Major Reset of Diplomatic Policy Towards Israel
UK Pushes Back After Trump Reopens Falkland Islands Sovereignty Dispute
Keir Starmer Resigns as MP, Triggering Holborn and St Pancras By-Election
×