Commenting on the interest rate decision from the Bank of England today, William Marshall, Chief Investment Officer, Hymans Robertson Investment Services (HRIS) says:

“Despite inflation accelerating again over the past couple of months, and reaching 3.1% in August, the Monetary Policy Committee’s decision to hold today makes sense.

Given recent increases in oil and gas markets, we now believe inflation could easily top 4% in early 2027. However, the key thing for the Bank of England is whether this energy-driven inflationary burst will lead to second-round effects, like we saw in 2022. At present, this is not apparent in the data, given core inflation has been stuck at 2.6% since May. In addition, the labour market remains loose compared to the last few years. Unemployment is moderately high at 4.9% while private sector regular wage growth is low at only 2.9%. All this means we are far less likely to experience the wage-price spiral dynamics of 2022.

That being said, if headline inflation does approach close to 4.5% the MPC may feel compelled to act to retain credibility, especially if other central banks, like the Federal Reserve and the ECB, continue to hike themselves.”