The Bank of England is expected to keep interest rates unchanged on Wednesday, despite inflation in the United Kingdom reaching its highest level in the past five months. This increase is due to the repercussions of the Iran war and rising fuel prices.
Economic Situation Analysis
Economists predict that the majority of the nine-member Monetary Policy Committee will want to see more evidence of the impact of rising inflation on prices and wages, and therefore will vote to maintain the bank's main rate at 3.75 percent for the sixth consecutive meeting.
Read more: The Clarity Act in the Senate was rejected with 10 votes short of a quorum
Official statistics released on Wednesday showed that rising prices at gas stations and airline tickets were mainly responsible for the increase in the consumer price index in the United Kingdom to 3.1 percent in August from 2.9 percent the previous month. This increase has pushed inflation further above the Bank of England's target of 2 percent.
Future Outlook
David Rees, Head of Global Economics at Schroders, is one of the economists who believes that interest rates will be maintained due to a soft economic backdrop, such as wages and the labor market. He said, "This should limit how imported price pressures become entrenched in wages and domestic prices."
Many economists predict that inflation will rise in the coming months as households face another increase in domestic energy costs starting in October. For this reason, consensus in financial markets is that interest rates will rise in one of the next two meetings, either in November or December.
Interest rates in the United Kingdom have moved down from their peak of 5.25 percent over the past 15 years until the United States and Israel attacked Iran in late February. The Iran war has led to a sharp increase in oil and gas prices, particularly because the Strait of Hormuz, a vital maritime traffic route, has been largely closed.
The increase in interest rates has also impacted the cost of personal loans and mortgages, becoming a growing problem for the UK government as the cost of servicing its debt constitutes a larger share of its expenses.
Read more: Increase in household income and reduction of poverty in 2025 · Trump criticized the Federal Reserve after the interest rate hike
Source: abcnews.com
