Bank of England Holds Rate at 3.75% as Middle-East Energy Shock Fuels Inflation Concerns

The Monetary Policy Committee (MPC) met on Thursday and kept the Bank of England’s base rate at 3.75%, the sixth consecutive hold. The decision came amid renewed attacks in the Strait of Hormuz and a rise in Brent crude above $107 per barrel. CPI inflation rose to 3.1 % in August, a five-month high that pushes the figure further from the Bank’s 2 % target.

UK inflation rises to 5-month high, further pressuring Bank of England to raise rates

Analysts had expected two rate cuts in 2026, the first in early spring. The Iran-U.S. conflict in February disrupted oil supplies, causing prices to spike, fall after ceasefires, and rise again when attacks resumed in July. The UK’s household energy-price cap took effect on 1 July, adding upward pressure on consumer costs.

BBC News

• CPI inflation: 3.1 % in August (up from 2.9 % in July) – ONS.

The Independent

• Base rate: 3.75 % (held).

Manchester Evening News

• Brent crude: $107 per barrel (week of the MPC meeting).

The Independent

• Energy-price cap increase: effective 1 July, raising typical dual-fuel household bills by 4 %.

The Independent

The Office for National Statistics attributed the August CPI increase primarily to higher fuel prices and airfares.

UK inflation rises to 5-month high, further pressuring Bank of England to raise rates

Market participants argue the Bank risks “losing credibility” if it fails to act on the inflationary shock. Anthony Brinkman said the gilt market is signalling that central banks are “out of time” and expect decisive action. Economist Kallum Pickering cautioned that tolerating a temporary overshoot could be less damaging than overtightening that harms growth.

Hold interest rates despite inflation risk, Shadow MPC tells Bank of England

• “August’s inflation increase is unlikely to trigger a rate hike tomorrow, as policymakers will take some comfort from a cooling jobs market,” — Suren Thiru, chief economist at ICAEW

UK inflation rises to 5-month high, further pressuring Bank of England to raise rates

• “The recent gilt market movements seem to be intent on showing central banks they are out of time – the market is expecting action,” — Anthony Brinkman, Principle Asset Management

Bank of England under pressure to raise interest rates

• “Rate rises cannot produce barrels of oil. The cost of an energy shock must fall on either prices or output, and with second-round effects so far subdued, the lesser evil is to tolerate a temporary overshoot rather than inflict further damage on an already weak economy,” — Kallum Pickering

Hold interest rates despite inflation risk, Shadow MPC tells Bank of England

Forecasts for inflation’s trajectory diverge. Thomas Pugh of RSM UK projects inflation peaking near 4 % in early 2027 before falling to 2 % in 2028. The Bank’s adverse scenario warns inflation could exceed 4 % by mid-2025. Uncertainty remains over whether the energy shock will generate broader wage-price spirals.

The Independent

The MPC will review data on energy prices, wage growth and consumer spending over the next six weeks. Some members have signalled a willingness to raise rates by 25 basis points if inflation stays above target for an extended period.

The Independent