Bank of England Keeps Interest Rates Steady at 3.75%, but War Threatens Future Increases

The Bank of England has decided to keep interest rates at 3.75%, warning that ongoing conflicts in the Middle East could increase borrowing costs. This announcement comes alongside rising inflation concerns. The central bank also unveiled a surprise plan to buy back government bonds; this move aims to prevent volatility in the bond market.

The central bank's monetary policy committee stated that while it has decided not to change interest rates at this time, the uncertainty created by a prolonged war could increase borrowing costs in the future. Bank Governor Andrew Bailey said, "High energy costs have had a limited impact on price and wage adjustments so far. However, the longer this uncertainty lasts, the greater its impact on inflation will be."

Currently, there are expectations in the markets that the Bank of England may raise interest rates by a quarter point in November, with a total of three increases anticipated over the next year. Inflation is predicted to reach 4% next year, driven by rising energy prices due to the war.

On the other hand, as part of its "quantitative tightening" program, the central bank plans to sell a total of £146 billion worth of bonds to buy back government bonds. This process will occur at a rate of approximately £20 billion per year until 2034. Before carrying out these sales, the central bank will seek approval from Chancellor of the Exchequer John Healey.

The bank's actions are aimed at combating inflation and ensuring financial stability. However, it is emphasized that caution is needed against volatility in global markets. While there are signs of resilience in the economy, it is noted that if inflationary pressures increase, interest rate hikes will be inevitable.