BANK OF ENGLAND EXPECTED TO HOLD INTEREST RATES AT 3.75%

The Bank of England is expected to hold interest rates at 3.75% when its Monetary Policy Committee meets on Thursday, according to economists. It would be the sixth consecutive hold since December. Official figures show Consumer Prices Index inflation rose to 3.1% in August, from 2.9% in July, a five-month high, further from the Bank's 2% target. Three of the nine-member committee, Huw Pill, Megan Greene and Catherine Mann, voted to raise rates to 4% last time and are expected to do so again.

Accounts differ on the cause: one cited higher motor fuel prices, with core inflation steady at 2.6%, while another pointed to rising energy, food and chip costs. Services inflation, reflecting the UK's dominant sector, held at 3.4%, which economists said pointed to limited wage-driven pressure. Ofgem's next price cap, from October, will add 4% to a typical dual-fuel bill. Global oil prices have risen around 20% since late August amid Middle East tensions, with Brent crude above $100 a barrel for the first time since May, while UK wholesale gas prices have doubled since July to above £2 per therm.

Thomas Pugh, chief economist at RSM UK, said inflation could peak near 4% in early 2027 before easing to the Bank's 2% target by 2028, calling that level too hot to ignore. Economist William Nixon said a sustained rise in global energy prices could push household bills up 20% to 25% in early 2027. Bank of England governor Bailey is expected to signal a low threshold for further rate rises, as soon as November. Charlotte O'Leary of the National Institute of Economic and Social Research said the committee would also weigh the recent rise in oil prices.