London Daily

Focus on the big picture.
Thursday, Aug 28, 2025

Inflation shock puts Bank of England on course to raise rates again

Inflation shock puts Bank of England on course to raise rates again

The Bank of England is expected to raise interest rates for the 11th time in a row on Thursday after a surprise jump in inflation dashed speculation that it might have been about to go on pause.

The BoE is trying to reconcile Britain's weak economic outlook and the worries about global banks with stubbornly high price growth, and it is due to announce its latest decision on rates at 1200 GMT.

Most economists had believed inflation was on course to fall steadily, after hitting a 41-year high above 11% in October.

But Wednesday's data - showing inflation rising to 10.4% in February rather continuing its descent - immediately turned Thursday's announcement into an almost one-way bet on a quarter percentage-point increase in Bank Rate.

As recently as Tuesday, investors were split almost 50-50 on whether the BoE would leave Bank Rate unchanged for the first time since November 2021.

Bets earlier this week on the BoE halting its run of rate hikes were further bolstered by the rescue of Credit Suisse and the collapse of Silicon Valley Bank which showed how some global banks were struggling to adjust to higher borrowing costs.

But investors in rate futures markets are now positioning for possibly two more 25-basis-point moves by the BoE by September after Thursday's expected hike.

On Wednesday, the U.S. Federal Reserve raised its main interest rates by a quarter of a percentage point, but indicated it was on the verge of pausing further increases. The European Central Bank last week stuck to its plans and raised rates by 50 basis points despite the Credit Suisse turmoil.

While some of the increase in the headline rate of British inflation announced on Wednesday was due to potentially one-off factors such as cold weather in Spain and North Africa which caused vegetable shortages, the underlying inflation measures that the BoE watches also rose.


WHEN WILL THE BOE STOP


Ben Nicholl, a fund manager with Royal London Asset Management, said the inflation jump was a "shocking data point" which added to other signs that the BoE will struggle to bring inflation all the way back down to its 2% target.

"It was only back in November when the BoE were sitting there saying: 'We are going into one of the longest recessions the UK has ever experienced'. Well, we've avoided recession for now," Nicholl said.

Pay growth is cooling but still running far above its historical average and shortages of workers remain acute which threatens to keep inflationary heat in the labour market.

The BoE was the first major central bank to start raising rates in December 2021 and had seemed likely to join the Bank of Canada which this month stopped raising borrowing costs.

BoE Governor Andrew Bailey and his colleagues last month dropped language saying that they were ready to act forcefully if the outlook suggested persistent inflationary pressures.

Thursday's announcement by the BoE is set to be limited to its Monetary Policy Summary and the minutes of its March meeting. No news conference by Bailey and his top colleagues is scheduled although Bailey is due to make a speech on Monday.

ING economist James Smith said he expected a rate hike on Thursday was likely to prove the last in the BoE's run.

"Assuming the broader inflation data continues to point to an easing in pipeline pressures, then we suspect the committee will be comfortable with pausing by the time of the next meeting in May," Smith said.

Newsletter

Related Articles

0:00
0:00
Close
Bruce Willis Relocated Due to Advanced Dementia
French and Korean Nuclear Majors Clash As EU Launches Foreign Subsidy Probe
EU Stands Firm on Digital Rules as Trump Warns of Retaliation
Getting Ready for the 3rd Time in Its History, Germany Approves Voluntary Military Service for Teenagers
Argentine President Javier Milei Evacuated After Stones Thrown During Campaign Event
Denmark Confronts U.S. Diplomat Over Covert Trump-Linked Influence in Greenland
Starmer Should Back Away from ECHR, Says Jack Straw
Trump Demands RICO Charges Against George Soros and Son for Funding Violent Protests
Taylor Swift Announces Engagement to NFL Star Travis Kelce
France May Need IMF Bailout, Warns Finance Minister
Chinese AI Chipmaker Cambricon Posts Record Profit as Beijing Pushes Pivot from Nvidia
After the Shock of Defeat, Iranians Yearn for Change
Ukraine Finally Allows Young Men Aged Eighteen to Twenty-Two to Leave the Country
The Porn Remains, Privacy Disappears: How Britain Broke the Internet in Ten Days
YouTube Altered Content by Artificial Intelligence – Without Permission
Welcome to The Definition of Insanity: Germany Edition
Just a reminder, this is Michael Jackson's daughter, Paris.
Spotify’s Strange Move: The Feature Nobody Asked For – Returns
Manhunt in Australia: Armed Anti-Government Suspect Kills Police Officers Sent to Arrest Him
China Launches World’s Most Powerful Neutrino Detector
How Beijing-Linked Networks Shape Elections in New York City
Ukrainian Refugee Iryna Zarutska Fled War To US, Stabbed To Death
Elon Musk Sues Apple and OpenAI Over Alleged App Store Monopoly
2 Australian Police Shot Dead In Encounter In Rural Victoria State
Vietnam Evacuates Hundreds of Thousands as Typhoon Kajiki Strikes; China’s Sanya Shuts Down
UK Government Delays Decision on China’s Proposed London Embassy Amid Concerns Over Redacted Plans
A 150-Year Tradition to Be Abolished? Uproar Over the Popular Central Park Attraction
A new faith called Robotheism claims artificial intelligence isn’t just smart but actually God itself
Deputy Prime Minister Angela Rayner Purchases Third Property Amid Housing Tax Reforms Debate
HSBC Switzerland Ends Relationships with Over 1,000 Clients from Saudi Arabia, Lebanon, Qatar, and Egypt
Sharia Law Made Legally Binding in Austria Despite Warnings Over 'Incompatible' Values
Italian Facebook Group Sharing Intimate Images Without Consent Shut Down Amid Police Investigation
Dutch Foreign Minister Resigns Amid Deadlock Over Israel Sanctions
Trump and Allies Send Messages of Support to Ukraine on Independence Day Amid Ongoing Conflict
China Reels as Telegram Chat Group Shares Hidden-Camera Footage of Women and Children
Sam Nicoresti becomes first transgender comedian to win Edinburgh Comedy Award
Builders uncover historic human remains in Lancashire house renovation
Australia Wants to Tax Your Empty Bedrooms
MotoGP Cameraman Narrowly Avoids Pedro Acosta Crash at Hungarian Grand Prix
FBI Investigates John Bolton Over Classified Documents in High-Profile Raids
Report reveals OpenAI pitched national ChatGPT Plus subscription to UK ministers
Labour set to freeze income tax thresholds in long-term 'stealth' tax raid
Coca‑Cola explores sale of Costa coffee chain
Trial hears dog walker was chased and fatally stabbed by trio
Restaurateur resigns from government hospitality council over tax criticism
Spanish City funfair shut after serious ride injury
Suspected arson at Ilford restaurant leaves three in critical condition
Tottenham beat Manchester City to go top of Premier League
Bank holiday heatwave to hit 30°C before remnants of Hurricane Erin arrive
UK to deploy immigration advisers to West Africa to block fake visas
×