The Bank of England looks set to keep interest rates on hold at 4% next week as inflation remains stubbornly above target.
Latest data due on Wednesday is expected to show consumer price inflation flat at 3.8% in the year to August – nearly double the Bank’s 2% goal.
The MPC believes inflation will peak at 4% in September, while HSBC analysts suggest it could edge higher to 4.2%.
The persistence of high food prices, rising household bills and April’s payroll tax increases on businesses have created what economists call an “inflation hump”. This has left the UK running hotter than both the eurozone, where inflation averages 2.1%, and the US at 2.9%.
BURDEN OF PROOF
Since last summer, the Bank has cut rates five times from 5.25%, but officials now stress a “cautious and gradual” approach to further easing. Citi economist Michel Nies said: “The burden of proof now lies with those on the committee that are in favour of looser rates.”
The Times reports that markets expect the nine-member MPC to hold borrowing costs steady through the end of the year, mirroring the European Central Bank’s pause earlier this month. The US Federal Reserve, however, is widely tipped to make its first cut of 2025 on Wednesday.
Attention will also focus on the Bank’s plans for quantitative tightening. Last year gilt sales totalled £100bn, but analysts predict a reduced programme of £70bn–£80bn to ease pressure on long-term borrowing costs, which hit a 27-year high in August.
Governor Andrew Bailey has warned MPs there is “considerably more doubt” over the timing of future cuts – a sign the MPC remains more worried about inflationary pressures than a cooling labour market.
