LONDON — The Bank of England held interest rates steady on Thursday, defying many investors’ expectations that it would become the first major central bank to hike rates following the pandemic.

Although markets were uncertain about whether the Bank would normalize its monetary policy at Thursday’s meeting or mid-December, analysts agreed that the Bank should move on to normalization.

The Bank of England monitors a convergence of key data points. Inflation remains high, while economic growth is slowing and labor conditions are tightening.

Inflation in Britain slowed in September unexpectedly, with a 3.1% annual increase, however analysts believe this will be a temporary respite. The August 3.2% increase in annual inflation was the largest increase since records began in 1997, and vastly exceeded the Bank’s 2% target.

After a surprise contraction of 0.1% during July, August’s GDP growth was 0.4%. This is due to an increase in staff absenteeism caused by the Covid-19 Delta variation.

U.K. job vacancies hit a record 1.1 million in the three months to August, while the average unemployment rate fell. Business leaders have been echoing this message in recent weeks: A tight labor market is supportive of greater wage growth.

Bill Winters from Standard Chartered spoke out to CNBC before Thursday’s climate decision at the COP26 conference. He stated that inflation is structural and not transitory.

Winters explained that he sees wage pressure everywhere he goes, that there are labor shortages, as well friction costs. There’s also energy prices which he believes will remain high because of economic activity.

“That tells me that inflation expectations are becoming embedded.”

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