Bank of England sounds inflation alarm as it holds interest rates

According to Business Recorder, the Bank of England left its benchmark rate at 3.75% on Thursday, with six Monetary Policy Committee members in favour and three backing a rise to 4%. The central bank also made an unexpected decision to pause its active sales of gilts for six months. It now sees inflation edging above 4% in early 2027, up from an earlier peak estimate of 3.2% in late 2026.

Governor Andrew Bailey noted that global energy costs have so far only modestly affected British pricing and wages, but warned that Bank Rate may need to rise if the volatility lasts. The minutes showed a noticeable change in tone, with several policymakers raising the prospect of a future increase. Sterling slipped about half a cent against the dollar after the announcement, while British government bond yields fell.

The central bank plans to reduce its gilt holdings for monetary policy purposes to zero by 2034, selling gilts maturing between 2035 and 2049 back to the government. Full details are due before April next year, and the warning comes ahead of the UK budget on October 28. The next meeting in November will feature updated projections and a news conference.