Interest rates held at 3.75% but Bank warns Iran war could mean future hike

Anna Wise, Press Association Business Reporter

The Bank of England has held interest rates at 3.75%, but policymakers warned that pressure to raise rates is building as the Iran war goes on.

The Bank’s Monetary Policy Committee (MPC) said global energy prices were volatile and likely to push inflation higher by the end of the year than it was previously expecting.

The decision to hold interest rates at 3.75% marks the sixth time in a row that the MPC has not changed borrowing costs.

But it follows a split vote among the nine-person committee, with six members voting to hold them steady and three calling to raise rates to 4%.

Governor Andrew Bailey, who voted for a hold, said: “So far higher global energy costs have had a limited effect on price and wage setting in the UK.”

This refers to so-called second-round effects, meaning things such as higher wage demands among the UK workforce and prices that are charged in shops.

He went on: “But the longer this volatility persists, the bigger the impact it will have on inflation, and the more likely it is we will need to raise Bank rate to ensure that inflation falls back to our 2% target.”

Economists have been warning that borrowing costs may have to be hiked in the months ahead to tackle rising inflation in the UK.

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