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The Bank of England kept its main interest rate at 3.75%, despite inflation rising to 3.1% in August and energy prices exceeding expectations, which are expected to lead to sustained inflationary pressures. The committee explained this decision by the lack of strong evidence of second-round inflation effects so far, amid ongoing disagreement among members about raising the rate to 4%. The current inflationary pressures are primarily attributed to rising fuel and energy prices, while higher bond yields are contributing to tighter financial conditions and dampening economic activity. There is also mention of a possible rate increase if long-term energy price volatility continues. Additionally, the bank revised its bond portfolio reduction mechanism, expecting bond sales to pause until April 2024. The energy factor remains the most significant element in any future rate hike decision.
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