The Bank of England has kept its key interest rate unchanged at 3.75%, while cautioning that it may need to raise borrowing costs if the ongoing conflict in the Middle East intensifies inflationary pressures.

Six rate-setters, including Governor Andrew Bailey, voted to hold the rate steady, with the Monetary Policy Committee's voting breakdown mirroring that of its previous meeting in July. In prepared remarks, Bailey noted that the global energy shock has so far had a limited impact on UK prices and wages. "But the longer this volatility persists, the greater its effect on inflation, and the higher the likelihood that we will need to raise Bank Rate," he said.

Alongside the rate decision, the Bank announced it would abandon its plan to sell long-dated UK government bonds, stating it will complete the rundown of its £488 billion bond portfolio by 2034. The escalating conflict between the US and Iran has complicated the MPC's decision-making process.

Soaring oil and gas prices have pushed up fuel costs, posing a risk to UK households. When the energy price cap is recalibrated in the new year, household energy bills could face even greater strain. The Bank now projects that inflation will reach double its 2% target early next year, while also upgrading its third-quarter GDP growth forecast to 0.4%.