London (AFP) – The Bank of England is expected to raise on Thursday its benchmark interest rate for the first time in more than three years as soaring energy costs push up global inflation. The BoE is forecast to tighten borrowing costs by a quarter point to 4.0 percent, finally catching up with the US Federal Reserve and European Central Bank in tightening borrowing costs since the start of the Middle East conflict.
Along with Ukraine’s strikes on Russian refineries, disruptions to energy supplies owing to the US-Iran war have caused record-high diesel prices around the world. “Borrowers are braced for at least one rate hike” from the BoE this year as “consumer confidence has been jarred by the prospect of prices edging ever higher in the wake of the ongoing conflict in the Middle East,” noted Danni Hewson, head of financial analysis at AJ Bell. The BoE last raised its rate in August 2023 and has kept the cost of borrowing at 3.75 percent since December.
Latest official data showed Britain’s annual inflation rate accelerated by more than expected in September, rising to 3.5 percent on surging fuel prices. UK inflation is forecast to hit around four percent in the new year, with millions of Britons facing a jump in energy bills, even after the government offered some assistance in its annual budget announcement last week.
Alongside its monetary policy update, the BoE will reveal its latest forecasts for UK economic growth and inflation, which analysts expect to come in similar to recent estimates from the country’s Labour government and International Monetary Fund. Both said last month that they expect Britain’s economy to have grown this year before slowing in 2027.
“We expect the Bank to raise its forecasts for near-term growth and inflation in its monetary policy report, but higher energy prices could ultimately weigh on its growth forecasts further ahead,” said Nomura analyst George Buckley. Australia’s central bank raised its key interest rate to an 18-year high of 4.85 percent on Tuesday, citing the prolonged war in the Middle East and persistent inflationary pressures.
© 2024 AFP
