Bank Of England Set To Hold Rates As UK Inflation Climbs Above 3%
The Bank of England is widely expected to leave its 3.75% Bank Rate unchanged on Thursday, even as inflation climbs well above its 2% target.
Markets are pricing in more than an 80% chance the central bank will hold rates steady, according to LSEG data, with a hike anticipated at the November meeting.
A hold would place the Bank of England at odds with several major central banks that have recently moved to tighten monetary policy.
The US Federal Reserve announced a quarter-point hike on Wednesday, its first rate increase since 2023, while the European Central Bank delivered its second hike of the year last week.
The Bank of Japan is also expected to raise its key interest rate following the conclusion of its two-day policy meeting on Friday.
The Bank of England has left rates untouched throughout 2026, having last adjusted policy in December with a 25-basis-point cut.
UK inflation rose to 3.1% in August, according to data released Wednesday, marking the first time it has climbed above 3% since March.
The Office for National Statistics said the spike was largely driven by motor fuel costs, which surged 23% year-on-year, reflecting the UK’s vulnerability as a net energy importer.
Britain continues to grapple with a cost-of-living crisis rooted in post-Covid inflation and the impact of the Russia-Ukraine war on natural gas supplies.
Pressure on UK government bonds, known as gilts, has intensified this year amid global inflation concerns, political instability, and apprehension over fiscal policy, with yields on long-dated 20- and 30-year gilts approaching the 6% mark.
The Telegraph reported earlier this week that the Bank of England would announce plans to stop selling 20- and 30-year gilts alongside Thursday’s rate decision.
Scott Gardner, an investment strategist at J.P. Morgan Personal Investing, said the inflation rise was “unlikely to convince the Bank of England to hike interest rates just yet,” but could stoke fresh concerns among policymakers.
“The U.S.-Iran conflict began over six months ago but higher energy costs are still filtering through to business input prices and household spending,” Gardner said in a note Wednesday.
Shreyas Gopal, an FX strategist at Deutsche Bank, said the absence of hawkish surprises in UK labour market and inflation data had been “enough for pricing for [hikes at] this upcoming meeting to fall back again.”