Comments from members of the Bank of England’s rate-setting committee suggest more interest rate hikes are on the way, writes Mauricio Alencar.

‘Stands to ready to act’ was the Bank of England’s mantra for most of this year as it waited for higher energy prices to trickle through the UK economy. After today, the Monetary Policy Committee is no longer standing still. 

Bank officials surprised City analysts by voting in unison to raise rates. Forecasters had predicted splits in the committee and a ‘on-the-fence’ approach to signalling further hikes. 

Instead, the only dissent that came was in Catherine Mann’s decision to vote for interest rates to rise by 50 basis points to 4.25 per cent. And Governor Andrew Bailey appears to be leading the charge for at least one further hike.

Explaining his decision, the Bank governor said that “without news which softens the risks to inflationary pressures, I can see the argument for a further increase in rates”. It makes it clear that the Bank looks poised to raise borrowing costs further unless a miracle takes place and price pressures simmer out. 

Megan Greene, Sarah Breeden, Huw Pill and Clare Lombardelli were the other members of the nine-strong committee to say a further hike appeared to be on the horizon. Their views were in stark contrast to external member Alan Taylor, who suggested today’s decision was a ‘one-and-done’. Not everyone on the MPC thinks the same. 

The Bank is leaning on “pressure in the pipeline” rather than evidence of real-time effects. While fuel and household energy costs are set to be much higher than economists would have wished, policymakers noted there was still little evidence of price effects spiralling out of control. 

It is taking a firm judgment call that business will pass on higher costs onto consumers in the coming months, which could trigger a violent reaction in price-setting and wage-bargaining among households and firms. Inflation is now set to peak at about 1.5 percentage points higher than it had previously forecast in July. Price growth will hit 4.9 per cent next summer, according to central forecasts.

Ultimately — like Chancellor John Healey — governor Andrew Bailey is a hostage to Donald Trump. While oil and gas prices have fallen after a crushing mid-terms verdict of the US president’s war in Iran, markets still maintained exepctations of multiple interest rate hikes taking place. 

By indirect means, Bailey issued a plea for Trump to end the war, saying interest rates would have to rise “unless the conflict in the Middle East is resolved”. City traders were, after all, not wrong to factor in the risk of several hikes. The Bank has now responded to markets but will decide to enter a rate-hiking cycle?