BoE Holds Rate at 3.75% as Iran-War Energy Shock Fuels Inflation

On September 17, the Bank of England’s Monetary Policy Committee voted 6-3 to keep the Bank Rate at 3.75 %. This marks the sixth consecutive meeting with no change, maintaining the level set in December 2025.

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The resurgence of hostilities in Iran has pushed global oil and gas prices above $100 a barrel and reduced traffic through the Strait of Hormuz. The energy shock has lifted UK petrol and diesel prices by almost 25 % and raised the Consumer Prices Index (CPI) to 3.1 % in August, up from 2.9 % in July. Prior to the conflict, the Bank had been on a “wait-and-see” path, with inflation already running above its 2 % target for nearly two years.

Bank of England expected to hold interest rates despite rising inflation

• Inflation: CPI 3.1 % in August (up 0.2 pp from July); core inflation 2.6 % for a fourth month.

Bank of England set to hold interest rates despite rising UK inflation

• Energy costs: Motor fuel prices rose 23 % year-on-year; electricity, gas and other household fuels up 6 % YoY.

Bank of England expected to hold interest rates despite rising inflation

• Quantitative tightening: The Bank announced a plan to sell £146 billion of gilts to the Treasury at roughly £20 billion a year through 2034. It will retain about £120 billion of bonds for note-and-coin backing, let £222 billion expire or be sold, and pause further sales until the Treasury sign-off, expected from Chancellor John Healey in April 2027.

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• Market expectations: Money-market pricing shows an 80 % probability of a hold this meeting, with a 20 % chance of a 25-basis-point hike to 4 %. Forecasts for the next meeting range from later this month to December.

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Governor Andrew Bailey said that higher global energy costs have so far had a limited effect on UK price- and wage-setting, but warned that prolonged volatility would increase inflationary pressure and make a future rate rise more likely. The MPC noted that the economy remains resilient, with little evidence of second-round effects such as wage-driven price spirals.

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• Nigel Green, chief executive of deVere Group, warned that a hold “is not good news” because fuel and energy costs are still climbing and gilt yields remain elevated, increasing the risk of a larger move later this year.

A Bank of England Hold Tomorrow Could Backfire Badly

Market forecasts diverge on the timing of the next rate move. Some analysts see a November hike as probable, while others point to a possible December decision, reflecting differing views on how quickly the energy shock will feed into broader price pressures. No source provides a consensus on the magnitude of the expected inflation peak, leaving uncertainty about the exact policy response required.

Bank of England keeps interest rates steady, hints at future hikes

• “So far, higher global energy costs have had a limited effect on price and wage setting in the U.K.,” — Governor Andrew Bailey

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• “If the committee treats this month's number as one to look through, and the next one confirms the trend, it ends up delivering in November the increase it could have signalled now, except from a worse starting point and with markets already unsettled.” — Nigel Green

A Bank of England Hold Tomorrow Could Backfire Badly

The Bank’s next policy meeting is scheduled for later this month, when the MPC is expected to signal whether a rate increase will be implemented. Chancellor John Healey will present his first budget on October 28, a date that could be influenced by the outcome of the bond-sellback negotiations. The quantitative-tightening programme will remain paused until the Treasury agreement is finalized.

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