The Bank of England held Bank Rate at 3.75% for a sixth straight meeting, but the 6-3 vote masks a broader hawkish shift: four of the six holders said persistent energy pressure could push them toward a hike. Governor Andrew Bailey warned that prolonged volatility in energy prices raises the odds of tightening, while the Bank sharply raised its inflation forecast.
The Bank of England kept its Bank Rate at 3.75% on Thursday, holding for a sixth consecutive meeting, even as policymakers moved closer to a rate hike tied to the Middle East conflict's effect on energy supplies. According to BBC News, Bailey warned: "the bigger the impact it will have on inflation and the more likely it is" that Bank Rate will need to rise.
A 6-3 vote that hides a wider split
The Monetary Policy Committee voted 6-3 to hold rates, with external members Megan Greene and Catherine Mann and Chief Economist Huw Pill again backing an immediate move to 4.00%. Within the hold camp, Bailey, Sarah Breeden, Clare Lombardelli and Dave Ramsden all indicated that persistent energy pressure or growing second-round inflation risks could strengthen the case for tightening.
Energy shock lifts the inflation outlook
Since the Bank's July report, Brent crude and UK wholesale gas prices have risen 36% and 78%, respectively. The Bank now expects CPI inflation to reach around 3.75% in the fourth quarter, up from a prior 3.2% forecast, before moving slightly above 4% in the first quarter of 2027. In August, headline UK inflation rose to 3.1% from 2.9% in July. Core inflation, which strips out fuel and food, held at 2.6% for a fourth straight month.
Growth holds up as bond sales pause
Still, there were brighter notes. The Bank raised its third-quarter growth estimate to 0.4% from 0.1% and now expects food inflation to reach 4% by year-end, down from a prior forecast of 6-7%. Alongside the rate decision, the Bank also said it would halt its quantitative tightening programme, pausing its annual gilt sales and instead unwinding its roughly £488bn bond stockpile in smaller chunks over eight years.
The next policy decision falls on November 5, and will hinge less on headline inflation than on whether wages, services prices and expectations show the energy shock spreading further into the economy.
Sources: BBC News, Investing.com, ActionForex
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