Bank of England Holds Rate at 3.75% as U.K. Inflation Climbs to 3.1%
The Bank of England left its benchmark Bank Rate unchanged at 3.75% on Thursday, according to CNBC, even as U.K. inflation climbed to 3.1% in August.
The Monetary Policy Committee voted 6-3 to hold rates, matching the outcome of its July meeting, Reuters reported. Three members, Huw Pill, Megan Greene and Catherine Mann, backed a quarter-point increase to 4%, according to Reuters.
The hold matches what economists surveyed by Reuters had forecast. Markets had priced a 76% probability of a hold going into the decision, based on LSEG data cited by CNBC.
Inflation Pressure Builds
U.K. consumer prices rose 3.1% in the year through August, up from 2.9% in July, the Office for National Statistics said, according to the BBC. The ONS attributed the uptick largely to higher energy costs, including rising petrol and diesel prices.
Bank of England Governor Andrew Bailey said higher global energy costs have so far had a limited effect on U.K. price and wage setting, but warned that could change.
The longer that volatility persists, the bigger the impact on inflation, and the more likely the bank will need to raise rates to meet its 2% target, Bailey said, per CNBC.
The bank's own forecast now points to inflation running slightly above 4% in early 2027, Reuters reported.
Mann, one of the dissenting MPC members, said upside risks to inflation have increased since July because of what she called the sporadic continuance of conflict pushing energy prices above earlier projections, CNBC reported.
A Split From Other Central Banks
The decision puts the Bank of England out of step with peers.
The Federal Reserve raised rates by a quarter point on Wednesday, its first increase since 2023, a move detailed in networth.com's earlier coverage of the .
The European Central Bank hiked to 2.5% last week, its second increase this year, and the Bank of Japan is expected to raise its own key rate Friday, according to CNBC.
Bailey told broadcasters the pass-through from energy costs to broader inflation has been subdued so far but that it remains early, Reuters reported.
He added that the central bank has sent a clear signal, and that the longer the situation continues, the harder policy gets, he said.
Bond Sales Paused
The MPC also paused all active sales of government bonds, known as gilts, for six months and began a broader overhaul of how it winds down its bond holdings, Reuters reported.
The pound fell about half a cent against the dollar and U.K. government bond yields dropped sharply after the announcement.
Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales, said interest rates are at a critical cliff-edge moment, according to Reuters.
He said persistent U.S.-Iran hostilities have shifted the risk of a rate hike from a possibility to a probability.
Bailey said the outlook remains too uncertain to judge market pricing that implies close to four quarter-point hikes over the coming year, Reuters reported. A rate increase at the bank's next meeting in November is widely expected, per CNBC.