BoE Holds Rates at 3.75%

The Bank of England kept its policy rate unchanged at 3.75% at its September meeting as policymakers continued to assess growing inflation risks from higher energy prices.

The Monetary Policy Committee voted 6-3 to hold rates, with three members supporting a 25-basis-point increase to 4%. The voting split was unchanged from the July meeting, highlighting continued differences within the committee over the appropriate path for monetary policy.

Energy Prices Raise Inflation Concerns

Higher energy costs remained a major concern for the BoE. Crude oil and refined product prices have risen amid the prolonged conflict in the Middle East, adding to inflationary pressures across the UK economy.

Annual consumer inflation increased to 3.1% in August, and the Bank warned that further increases could follow in the coming months.

Policymakers are particularly focused on whether higher energy costs begin to affect wages and other prices more broadly. So far, these “second-round” inflation effects appear limited. However, the BoE warned that the risk could increase if energy prices remain elevated for a prolonged period.

BoE Takes Cautious Approach

The central bank remains committed to bringing inflation sustainably back to its 2% target. However, policymakers appear reluctant to raise rates again before gaining a clearer picture of the scale and duration of the current energy shock.

Future decisions are therefore likely to depend heavily on inflation, wage growth and evidence of whether higher energy costs are spreading through the wider economy.

Bond Holdings to Be Gradually Reduced

The MPC also agreed on a long-term plan to continue reducing the Bank’s government bond portfolio.

Under the plan, holdings are expected to decline by an average of £46 billion per year through 2034, eventually bringing the portfolio to zero over the longer term.

The gradual approach signals that the BoE intends to continue shrinking its balance sheet while avoiding an abrupt withdrawal from the government bond market.

Latest Analysis

Fed Raises Rates, Signals Tighter Path

The Federal Reserve raised interest rates by 25 basis points, lifting the federal funds target range to 3.75%-4.00%. The unanimous decision marked the Fed’s first rate increase in three years.

Detail

Oil Gets a Saudi Lifeline (17.09.2026)

Brent fell toward $105.50 as Saudi Arabia said around half of its East-West pipeline capacity could return within days, with full operations targeted within six weeks.

Detail