BANK OF ENGLAND SET TO RAISE INTEREST RATES TO 4%

The Bank of England's Monetary Policy Committee is expected to raise interest rates on Thursday, according to economists and financial markets traders, marking its first increase since August 2023. Traders are pricing in a rise from 3.75% to 4%, a decision to be taken by the committee chaired by Governor Andrew Bailey. The anticipated move follows official figures showing Consumer Prices Index inflation rose to 3.5% in September, the highest level in 11 months. Economists say the expected rise reflects the resilience of the UK economy and rising energy costs linked to the conflict in the Middle East.

Analysts have linked the Middle East conflict to higher oil, petrol and diesel prices, pushing inflation further above the Bank's 2% target. Ofgem's energy price cap for a typical household rose by 3.6% on 1 October and is forecast to rise by a further 22% in January. Ellie Henderson, an analyst at Investec, said: "We imagine that many committee members' patience with the recent rise in inflation has worn thin." She said producers might "not be willing or able to shoulder the burden of higher energy prices for much longer", which could push up prices in shops.

Alexander Harvey, UK economist at Oxford Economics, said a November rate rise looks to be a "done deal" for the committee. He said the move would respond to higher oil and gas prices. Harvey said the scale and duration of the energy price shock, along with the risk of second-round inflation effects, will continue to dominate the committee's outlook. The Monetary Policy Committee's announcement is due on Thursday, with any increase raising borrowing costs for mortgage holders.