Interest rates hold expected but Bank of England facing tough choices

Image source, Getty ImagesByKevin PeacheyCost of living correspondentPublished4 hours agoPolicymakers at the Bank of England are expected to keep interest rates unchanged despite price rises accelerating due to the prolonged conflict in the Middle East.

The nine-member Monetary Policy Committee (MPC) has been meeting amid a backdrop of increasing global energy prices and interest rate rises around the world.

Economists expect the MPC to hold the benchmark Bank rate at 3.75% for a sixth consecutive meeting but analysts are more divided on whether the rate will need to go up before the end of the year.

The Bank rate is crucial in setting the benchmark for banks and other lenders in setting interest for individuals and businesses borrowing and saving money.

The latest interest rate decision will be announced by the Bank at 12:00 BST on Thursday.

Following its previous meeting at the end of July, the MPC indicated it could raise the Bank rate if the Iran war escalated.

Bank of England governor Andrew Bailey told the BBC at the time: "If we get a continuation of this conflict going on and oil prices stay above $100 a barrel... the odds are that interest rates will have to go up higher."

Oil prices moved above the $100 (£74) level on 9 September, and have remained there since, and there are few signs of a lasting truce in the Iran war.

The Bank uses interest rates to control inflation, which charts the rising cost of living. It aims to keep inflation at a target rate of 2%.

However, official figures released on Wednesday showed the Consumer Prices Index (CPI) measure of inflation had risen to 3.1% in August from 2.9% in July, pushing it to its highest rate in six months.

The acceleration was driven by rises in the cost of petrol, diesel and airfares.

Economists expect that higher global energy costs will feed through to food and fuel prices paid by consumers, meaning the inflation rate is yet to peak.