Bank of England keeps interest rates stable and signals willingness to act

London. Despite the ongoing oil price shock, the central bank in London is keeping interest rates stable, but at the same time is signaling its willingness to take action. The Bank of England (BoE) left the key monetary policy rate at 3.75 percent on Thursday. However, the decision was internally controversial: it was made by six votes to three. The three dissenters voted for an increase to 4.0 percent. Central Bank Chairman Andrew Bailey explicitly warned that a protracted conflict in the Middle East could necessitate tighter monetary policy.

So far, the significantly increased global energy costs have had only a limited impact on price and wage formation in the United Kingdom. “But the longer these fluctuations continue, the greater the impact on inflation will be – and the more likely it will be that we will need to raise interest rates to ensure that inflation returns to our two percent target,” Bailey said.

Inflation recently rose to 3.1 percent. In the wake of the Iran war, fuel and gas prices have risen sharply. This is likely to create new inflationary pressure. Against this background, traders on the futures markets are expecting an interest rate increase soon. The probability of this happening at the BoE meeting at the beginning of November is estimated at around 65 percent.