Britain's central bank, the Bank of England, said on November 5 it had raised its key interest rate to 4% from 3.75%. Eight of the nine people who set it voted for the quarter-point rise. The ninth, Catherine Mann, wanted twice as much, a jump to 4.25%.
The Bank of England pointed to energy. The conflict in the Middle East is now in its ninth month, it said, and global energy prices have kept climbing from an already high level. UK inflation was 3.5% in September. The Bank now expects it to reach about 5% by the middle of next year, against a target of 2%.
That reaches people's wallets fast. The Bank said market interest rates have stayed high compared with before the conflict and have kept feeding through to the rates some households and firms pay. Benchmark two-year mortgage rates have risen by nearly half a percentage point since the start of September. So how much further will borrowing costs climb if the Bank keeps raising rates in the coming months? The Bank does not say.
Its own members do not agree on whether it will. Andrew Bailey said that without news easing the inflation risks, "I can see the argument for a further increase in rates." Huw Pill said a single quarter-point hike "is unlikely to be sufficient." Megan Greene wrote: "Additional hikes will likely be required going forward." Clare Lombardelli said there is likely to be a case for another rise in the near term.
Alan Taylor voted for the same rise and drew the opposite line. "It is essential to communicate, and for markets to understand, that, as of now, this is not the start of a hiking cycle," he said. He called it a "one-for-now" insurance hike.
The numbers behind the worry are in oil and gas. Brent crude futures averaged $108 a barrel in the three weeks to October 27. That was 38% higher than in July. UK natural gas futures were up 81% over the same stretch.
So far, the Bank says, that has not spread much into other prices or wages. Many firms are swallowing the cost through thinner profits, and some are shielded by fixed-price energy contracts. The Bank judged those cushions will mostly prove temporary, and that the costs could eventually reach shoppers if the energy shock lasts.
The next decision is due on December 17. Taylor's summary of what comes before it: "The next move could be up, down, or sideways."