Surging oil prices above $100 are set to reopen debate at the Bank of England over whether it needs to increase interest rates before year-end, as policymakers prepare to meet on Thursday. The Monetary Policy Committee convenes under the shadow of a bond-market sell-off pressuring Prime Minister Andy Burnham ahead of the October 28 Budget. Markets price a less than one-in-three chance of a rate rise at the September meeting, but rising energy prices from the Middle East war escalation, accelerating inflation, and robust UK GDP growth are intensifying internal debate over how long the key rate can stay at 3.75 per cent.

"The MPC's patience may be running thin," said Sanjay Raja of Deutsche Bank. The ECB raised rates Thursday and the Fed may follow. Traders watch the voting split, with consensus expecting six hold votes and three for a rise per LSEG data. Some warn oil persistence could shift the vote to 5-4 or trigger a surprise hike, said Akshay Singal of Citi. Swaps now imply four quarter-point hikes by next year, with a November move fully priced in.

Governor Andrew Bailey signaled rising "upside risks" to inflation at a Treasury committee hearing. Investors fear BoE credibility risks if it lags peers, potentially weakening the pound. Allan Monks of JPMorgan expects inflation to hit 4 per cent by early next year. The BoE also faces decisions on quantitative tightening, with gilt yields near 6 per cent — a level unseen since 1998 — prompting calls to slow balance sheet shrinkage from £70bn to £50bn.