BoE Holds Rates Amid Hawkish Tilt; Fed Raises Rates, Forecasts Continued Tightening

The Bank of England is set to announce its policy decision at 11 am GMT today, keeping the key bank rate at 3.75 %—the level it has maintained since the last series of cuts ended in December. The Monetary Policy Committee (MPC) has now defended this stance for five straight meetings, but the tone has become noticeably hawkish. At the July meeting, a 6‑3 vote to hold was narrowly overturned by three members—including chief economist Huw Pill—who advocated an immediate move to 4 %.

Inflation remains the central concern. The latest UK CPI figures for August, released earlier today, showed headline inflation at 3.1 % year‑on‑year, up from 2.9 % in July, largely driven by a jump in motor‑fuel prices. Core inflation held steady at 2.6 %. The BoE’s market pricing has shifted modestly to the dovish side, with the probability of a rate hike dropping from 30 % to about 20 % for today’s meeting, while the odds of a hold sit at 80 %. Longer‑term expectations are unchanged, with the market still pricing in roughly 48 bps of cumulative hikes by year‑end.

Given that a hold is now almost a foregone conclusion, market watchers will focus on the MPC vote split and any language that signals a firmer stance on inflation. A tighter split than 6‑3 or more hawkish wording could lift the pound even without a rate move.

Meanwhile, the U.S. Federal Reserve confirmed a 25‑basis‑point hike to a 3.75‑4.00 % policy range, a move largely priced in by futures markets and backed by 80 % of economists polled by Reuters. In the Fed’s Summary of Economic Projections, 16 of 18 officials (excluding Chairman Kevin Warsh, who did not submit a dot) expect at least one more rate increase before year‑end, with two members favouring a hold. The projections now see growth at 2.3 % this year and 2.4 % next, unemployment steady at 4.1 % through 2029, and PCE inflation at 3.7 % headline and 3.4 % core this year, easing to 2.3 % and 2.5 % next year. The Fed’s statement emphasised that economic activity is expanding at a solid pace, but that inflation remains elevated.

The Fed’s hawkish stance, coupled with the updated projections, signals a willingness to keep policy tight for the foreseeable future. This approach may support the dollar against the euro and the pound, but it also raises concerns about potential labour‑market strain and the limited impact on supply‑side inflation.