Bank of England Holds Rates, Signals 25‑Basis‑Point Hike Ahead of November Meeting

On Thursday, the Bank of England’s Monetary Policy Committee voted 6‑3 to keep the Bank Rate at 3.75%, the same level set in December. The three dissenting members signalled that a 25‑basis‑point increase to 4.0 % was becoming increasingly likely.

Market data from LSEG suggested a 76 % probability that the Bank would hold rates this week, yet analysts expect a hike of at least 25 basis points at the next policy meeting in November.

The decision marks a clear divergence from other major central banks. The U.S. Federal Reserve announced a 25‑basis‑point rate rise on Wednesday, its first increase since 2023. The European Central Bank delivered its second rate hike of the year after a June lift that ended a three‑year pause. The Bank of Japan is slated to raise its key rate at the conclusion of its two‑day meeting on Friday.

"Higher global energy costs have had a limited effect on price and wage setting in the U.K.," Governor Andrew Bailey said in a statement. "However, if this volatility persists, its impact on inflation will grow, making a rate increase more likely to bring inflation back to our 2 % target."

MPC members who voted for a hike highlighted uncertainty surrounding the Iran conflict and its potential economic fallout. Catherine L Mann, former global chief economist at Citibank, noted that the ‘sporadic continuance’ of the war has pushed energy prices well above the baseline set in the July report, and that the BoE’s short‑term forecast projects the consumer price index rising above 4 % in early 2027.

Megan Greene cited uncertainty over the extent of second‑round effects from the Iran war, AI‑driven supply constraints, and the El Niño climate event as sources of inflationary pressure.

Huw Pill, the third member to favour tightening, argued that raising the Bank Rate would send a clear signal of the MPC’s commitment to price stability amid geopolitical conflict and data noise. "Acting decisively now cuts through uncertainty and helps prevent entrenched inflation that would require even tighter policy later," he said.

The BoE has left rates unchanged since December, when it approved a 25‑basis‑point hike. The current pause reflects a cautious approach as the Bank balances rising inflation against the risks of over‑tightening in a volatile global environment.