Interest rates held as Bank of England says inflation set to rise
The UK economy is expected to grow by more than previously forecast this year, according to the Bank of England, although major uncertainties remain because of the Iran war.
The Bank said it expects the pace of price rises – as measured by inflation – to pick up due to volatile oil and gas prices caused by conflict in the Middle East.
But the peak will be slightly lower than previously thought and the UK economy will expand a little more.
The Bank voted to hold interest rates at 3.75% for a fifth meeting in a row. It said any change in borrowing costs would depend on how long the energy shock will last and how severe it is.
Oil and gas prices have seen wild swings in recent days because of uncertainty over the status of the US-Iran conflict.
On Monday, the price of crude fell as US President Donald Trump said there were “very friendly negotiations” happening between Washington and Tehran.
On Wednesday, oil shot up to more than $91 per barrel as Trump said of Iran: “We’ll be hitting them hard. They’re going to get a beating.”
Recent data showed that UK inflation eased to 2.6% in the year to June, when diesel and petrol prices fell during a brief lull in hostilities between the US and Iran.
Bank of England governor Andrew Bailey said: “Inflation has fallen faster than expected but the conflict in the Middle East continues to mean high and volatile energy prices. That will cause inflation to rise again this year.
“However, as the conflict unfolds, our job is to make sure any increase in inflation is temporary and that it comes back to our 2% target.”
