London Daily

Focus on the big picture.
Monday, Nov 10, 2025

Bank of England set for tough call on interest rates after US rise

Bank of England set for tough call on interest rates after US rise

Analysis: UK faces strong pressure from inflation, but increase could help push economy into recession
The Federal Reserve has raised US interest rates for the first time since 2018; now all eyes are now on the Bank of England to see whether it increases UK borrowing costs for a third time in succession.

Wednesday’s quarter-point increase by the world’s most powerful central bank was never really in doubt. It would have come as a complete shock to Wall Street had the Fed decided to sit on its hands as a result of the war in Ukraine.

The US is much less dependent on imported energy than other developed nations and further away from the conflict. The message from Jerome Powell, the Fed’s chairman, was clear: plenty more rate rises – six more quarter-point jumps – are planned before the end of the year. As far as the Fed is concerned, this is now the post-Covid era.

For Threadneedle Street’s monetary policy committee, things are less clear cut, and any one of three options is possible: another quarter-point increase; a half-point increase; or no change. There are nine MPC members and they could easily split three ways when it comes to the vote.

The reason it is a tough call for the Bank is that the economy is being pulled in two directions at once. On the one hand, inflationary pressure was strong even before Russia’s invasion of Ukraine gave an added upward thrust to global commodity prices.

Yet, on the other, UK households are facing the biggest squeeze on their real – inflation-adjusted – incomes for half a century. As the year wears on, and people have to contend with higher energy bills, higher food prices and higher taxes, the deflationary pressure will intensify.

A return to 1970s-style stagflation is the worry on both sides of the Atlantic. Larry Summers, the former US treasury secretary, is predicting that unemployment and inflation will remain above 5% for the next few years in America, and the same pressures affect the UK, only more so.

There is nothing the Bank of England can do to affect the global price of energy or food, but some members of the MPC are jittery about higher prices generating pressure for higher wages. The fear is that in a tight labour market, a wage-price spiral will set in.

Others on the committee are more concerned about the economy hitting the wall in the second half of 2022. Their fear is that over-aggressive interest rate increases will help push the economy into recession.

Before the Russian invasion of Ukraine, there had been speculation the Bank might get more aggressive with a half-point rise this month. That now looks less probable, although it cannot be entirely ruled out.

Nor can the suck-it-and-see approach, although leaving rates unchanged would also be a surprise given that the Bank was expecting inflation to rise above 7% next month even before Vladimir Putin complicated matters.

The likeliest outcome is that the Bank will stick to its policy of gradually edging rates to a more normal setting by raising rates by a quarter-point to 0.75% – returning borrowing costs to their pre-pandemic level – and leave the option open of raising them by a further quarter-point in May, when it will publish updated forecasts for the economy.
Newsletter

Related Articles

0:00
0:00
Close
UK and Germany Sound Alarm on Russian-Satellite Threat to Critical Infrastructure
Former Prince Andrew Faces U.S. Congressional Request for Testimony Amid Brexit of Royal Title
BBC Director-General Tim Davie and News CEO Deborah Turness Resign Amid Editing Controversy
Tom Cruise Arrives by Helicopter at UK Scientology Fundraiser Amid Local Protests
Prince Andrew and Sarah Ferguson Face Fresh UK Probes Amid Royal Fallout
Mothers Link Teen Suicides to AI Chatbots in Growing Legal Battle
UK Government to Mirror Denmark’s Tough Immigration Framework in Major Policy Shift
UK Government Turns to Denmark-Style Immigration Reforms to Overhaul Border Rules
UK Chancellor Warned Against Cutting Insulation Funding as Budget Looms
UK Tenant Complaints Hit Record Levels as Rental Sector Faces Mounting Pressure
Apple to Pay Google About One Billion Dollars Annually for Gemini AI to Power Next-Generation Siri
UK Signals Major Shift as Nuclear Arms Race Looms
BBC’s « Celebrity Traitors UK » Finale Breaks Records with 11.1 Million Viewers
UK Spy Case Collapse Highlights Implications for UK-Taiwan Strategic Alignment
On the Road to the Oscars? Meghan Markle to Star in a New Film
A Vote Worth a Trillion Dollars: Elon Musk’s Defining Day
AI Researchers Claim Human-Level General Intelligence Is Already Here
President Donald Trump Challenges Nigeria with Military Options Over Alleged Christian Killings
Nancy Pelosi Finally Announces She Will Not Seek Re-Election, Signalling End of Long Congressional Career
UK Pre-Budget Blues and Rate-Cut Concerns Pile Pressure on Pound
ITV Warns of Nine-Per-Cent Drop in Q4 Advertising Revenue Amid Budget Uncertainty
National Grid Posts Slightly Stronger-Than-Expected Half-Year Profit as Regulatory Investments Drive Growth
UK Business Lobby Urges Reeves to Break Tax Pledges and Build Fiscal Headroom
UK to Launch Consultation on Stablecoin Regulation on November 10
UK Savers Rush to Withdraw Pension Cash Ahead of Budget Amid Tax-Change Fears
Massive Spoilers Emerge from MAFS UK 2025: Couple Swaps, Dating App Leaks and Reunion Bombshells
Kurdish-led Crime Network Operates UK Mini-Marts to Exploit Migrants and Sell Illicit Goods
UK Income Tax Hike Could Trigger £1 Billion Cut to Scotland’s Budget, Warns Finance Secretary
Tommy Robinson Acquitted of Terror-related Charge After Phone PIN Dispute
Boris Johnson Condemns Western Support for Hamas at Jewish Community Conference
HII Welcomes UK’s Westley Group to Strengthen AUKUS Submarine Supply Chain
Tragedy in Serbia: Coach Mladen Žižović Collapses During Match and Dies at 44
Diplo Says He Dated Katy Perry — and Justin Trudeau
Dick Cheney, Former U.S. Vice President, Dies at 84
Trump Calls Title Removal of Andrew ‘Tragic Situation’ Amid Royal Fallout
UK Bonds Rally as Chancellor Reeves Briefs Markets Ahead of November Budget
UK Report Backs Generational Smoking Ban Ahead of Tobacco & Vapes Bill Review
UK’s Domino’s Pizza Group Reports Modest Like-for-Like Sales Growth in Q3
UK Supplies Additional Storm Shadow Missiles to Ukraine as Trump Alleges Russian Underground Nuclear Tests
High-Profile Broodmare Puca Sells for Five Million Dollars at Fasig-Tipton ‘Night of the Stars’
Wilt Chamberlain’s One-of-a-Kind ‘Searcher 1’ Supercar Heads to Auction
Erling Haaland’s Remarkable Run: 13 Premier League Goals in 10 Matches and Eyes on History
UK Labour Peer Warns of Emerging ‘Constituency for Hating Jews’ in Britain
UK Home Secretary Admits Loss of Border Control, Warns Public Trust at Risk
President Trump Expresses Sympathy for UK Royal Family After Title Stripping of Prince Andrew
Former Prince Andrew to Lose His Last Military Title as King Charles Moves to End His Public Role
King Charles Relocates Andrew to Sandringham Estate and Strips Titles Amid Epstein Fallout
Two Arrested After Mass Stabbing on UK Train Leaves Ten Hospitalised
Glamour UK Says ‘Stay Mad Jo x’ After Really Big Rowling Backlash
Former Prince Prince Andrew Faces Possible U.S. Congressional Appearance Over Jeffrey Epstein Inquiry
×