Interest rates held at record low but rise imminent amid spiralling inflation

The Bank of England has held off from raising interest rates but a hike is likely in the "coming months" amid growing inflationary pressures.

Minutes of the central bank's latest decision showed members of the nine-strong monetary policy committee voted seven to two in favour of keeping rates unchanged at 0.1 per cent. Two members were outvoted in calling for a rise to 0.25 per cent.

Financial markets had expected the bank to raise rates as soon as this month on the back of soaring energy and fuel costs and recent comments from Bank governor Andrew Bailey that policymakers would have to "act" to bring inflation under control.

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But the bank said a rate increase was on the way as it warned gas and electricity tariff increases will see the consumer prices index (CPI) measure of inflation jump from 3.1 per cent to 4.5 per cent and hit around 5 per cent next April - well above its target of 2 per cent.

The Bank of England has held off from raising interest rates, for now. Picture: Daniel Leal-Olivas/Getty Images

The minutes from the latest meeting showed the bank held its nerve on rates as most members wanted confirmation first from upcoming official figures that unemployment has not jumped markedly higher following the end of furlough support.

The MPC also chose to hold the bank's quantitative easing programme at £895 billion, but the vote was split 6-3.

The bank trimmed its growth forecast for the third quarter to 1.5 per cent from the 2.1 per cent predicted in September. This would mark a steep drop from the 5.5 per cent growth notched up between April and June.

Ben Kumar, senior investment strategist at 7IM, said: “Despite no movement on interest rates today, all signs point towards a rate hike on the horizon as the BoE starts to consider options to get inflation under control.”

Guy Foster, chief strategist at Brewin Dolphin, added: “The MPC delayed what now seems to be inevitable. When they do raise rates the MPC will be sending a signal to the market: It was prepared to act against inflationary pressures.

“The biggest impact would normally come through mortgage rates, but households have been adept at transitioning from trackers towards very low fixed rates over the last five years.”

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