The Bank of England, Britain's central bank, said on Thursday it will keep interest rates unchanged despite widespread speculation that it will raise rates to contain rising inflation.
The Bank's Monetary Policy Committee (MPC) judged that the existing stance of monetary policy remained appropriate, and the MPC voted by a majority of seven to two to maintain base rate at 0.1 percent, according to the Bank.
Annual inflation stood at 3.1 percent in September, and is expected to peak at around 5 percent in April next year, the Bank predicted, but added that the upward pressure on CPI inflation is expected to dissipate over time, as supply disruption eases, global demand rebalances, and energy prices stop rising.
The Bank expected inflation to fall back from the middle of next year, and to be close to its 2 percent target in two years' time.
The unemployment rate fell to 4.5 percent in the three months to August and initial indicators suggest that it will rise slightly in the fourth quarter, it said.
"We now expect interest rates will need to rise modestly to return inflation to our 2 percent target," the Bank said.
The Bank is treading a fine line between tackling higher inflation and protecting economic recovery. Bank of England governor Andrew Bailey earlier warned that it "will have to act" over rising inflation. Financial markets had forecast an increase of base rate from 0.1 percent to 0.25 percent.
The Bank made two emergency cuts of base rate from 0.75 percent to 0.1 percent to support businesses and households since the COVID-19 pandemic began. The Office for Budget Responsibility forecast in October that the economy will grow at 6.5 percent this year, up sharply from the 4 percent predicted in March.
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