Story summary
The Bank of England’s Monetary Policy Committee (MPC) voted 6-3 to maintain the bank rate at 3.75%, a decision that concealed a shift within the majority towards potential future rate hikes. The committee’s split vote follows rising concerns over inflation, driven by volatile global energy prices due to the ongoing Iran war.
Consumer Prices Index (CPI) inflation rose to 3.1% in August, up from 2.9% in July and reaching a five-month high. This increase is primarily attributed to higher fuel costs. Three committee members—Huw Pill, Megan Greene, and Catherine Mann—voted for raising the rates by 0.25 percentage points.
Despite maintaining current interest rates, policymakers have issued warnings that prolonged volatility in energy prices could necessitate future rate hikes to ensure inflation falls back to its 2% target. This hawkish stance was reflected in post-meeting statements from several MPC members indicating their readiness to support higher rates if conditions worsen.
Economists and financial analysts are now closely monitoring economic indicators, including UK retail sales figures and US industrial production data, for further signals that could prompt the Bank of England to increase borrowing costs. The FTSE 100 index in London saw an upturn following the MPC’s announcement, with investors digesting the potential implications of a future rate hike on market stability and economic conditions.
Written for “Bank Of England Interest Rate Decision” on 2026-09-18,
grounded in this article and the 9 other(s) covering the same event.
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The Bank of England held interest rates at 3.75 per cent today, but warned that surging energy prices could push it to increase the benchmark rate in the coming months.
The Monetary Policy Committee voted to keep the Bank rate at its current level for the sixth meeting in a row, holding firm as other central banks hike rates to combat higher inflation.
There was no change from July's meeting, with six rate setters voting to keep the benchmark rate at 3.75 per cent and three voting to hike.
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three → see → cent
But Governor Andrew Bailey warned the Bank might need to raise rates if energy costs remain high.
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costs → warn → rates
He said: 'Today, we’ve held Bank Rate at 3.75 per cent.
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we → say → cent
So far higher global energy costs have had a limited effect on price and wage setting in the UK.
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costs → have → UK
But the longer this volatility persists, the bigger the impact it will have on inflation, and the more likely it is we will need to raise Bank Rate to ensure that inflation falls back to our 2 per cent target.
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inflation → persist → target
Since the committee's last meeting, escalating hostilities in the Middle East have pushed oil prices to their highest level in months, with Brent crude surpassing $100 a barrel.
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crude → escalate → 100
Figures published on Wednesday show inflation stood at 3.1 per cent in August, from 2.9 per cent in the previous month.
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inflation → publish → month
Core inflation – which strips out volatile food and energy prices – held steady for the fourth month in a row at 2.6 per cent, raising hopes that the UK has not yet seen severe second-round effects from the energy price shock.
Hold:
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UK → strip → shock
The Bank of England's decision came despite fears of a fresh bout of higher inflation
However, economists have warned that the deterioration of the situation in the Middle East could push prices higher, with inflation reaching 4 per cent by the new year, double the Bank of England's target.
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inflation → come → target
Central banks typically raise rates to bring down inflation and cut them once prices are back under control.
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prices → raise → control
The longer energy prices are elevated, the greater the risk inflation becomes embedded and starts to feed through to second round effects.
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inflation → elevate → effects
The Bank of England has adopted a 'wait and see' approach as it assesses the impact of the energy shock before taking decisive action.
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it → adopt → action
Economists at investment bank ING said: 'The UK economy is far less susceptible to second-round effects than it was during the Ukraine shock four years ago.
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it → say → shock
'There's nothing in [the inflation data] that suggests the Bank of England needs to turn more hawkish.
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Bank → be → England
'Inflation is currently behaving fairly predictably – which wasn't the case back in 2022, when the data was consistently coming in above forecasts.
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data → behave → forecasts
But millions of households and businesses still face a sharp increase in the cost of their mortgages and other loans.
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millions → face → mortgages
Higher inflation will put pressure on the Bank to raise rates, with markets pricing in four increases by the end of next year.
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markets → put → year
That will add to a cost-of-living crisis that shows no signs of abating, with new analysis suggesting energy bills, which are set to rise to a three-year high next month, are forecast to climb a further 25 per cent in January.
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which → add → January
It will also spell pain for those looking to remortgage or get onto the housing ladder.
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It → spell → ladder
Speculation over rate hikes over the coming months has prompted major banks, including NatWest, Santander, HSBC, Lloyds Bank and TSB, to raise mortgage rates, with others 'highly likely' to follow suit, say experts.
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experts → come → suit
The average five year mortgage rate stands at 5.87 per cent, its highest level since November 2023.
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rate → stand → November
Motorists are also being squeezed, with petrol prices hitting a four-year high.
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prices → squeeze → high
The Bank of England must navigate higher prices carefully because the forces pushing up energy, and possibly food, are supply rather than demand led.
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forces → navigate → energy
Higher interest rates cannot tame the geopolitical uncertainty and could have a knock-on impact on already delicate economic growth.
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rates → tame → growth
Governor Andrew Bailey warned that the Bank may need to hike in the coming months
Rob Morgan, chief investment analyst at Charles Stanley, said: 'The BoE therefore needs to tread an exceptionally narrow and thorny path as it aims to tame inflation while averting an economic downturn.
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it → warn → downturn
For now, there is little evidence of feared 'second round' effects, and no indication yet that the weak jobs market will turn around'.
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market → be → effects
Economists think the Bank of England will hold rates through the year before cutting, though it will depend on how high food and energy prices go.
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prices → think → year
Any fiscal stimulus in the Budget could also add to inflation pressures.
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stimulus → add → pressures
Today's decision came after the Federal Reserve unanimously voted to increase interest rates by 0.25 percentage points to 4 per cent, for the first time since 2023.
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Reserve → come → 2023
It is the first time the Bank of England has diverged from the US central bank since September 2024, when it kept its benchmark rate unchanged while the Federal Reserve announced a 50 basis point rate cut.
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Reserve → diverge → cut
'The Bank of England is officially the last one standing of the central bank triumvirate, choosing to continue to hold interest rates while everyone else raises them,' said Richard Carter, head of fixed income research at Quilter Cheviot.
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Carter → stand → Cheviot
'With much of the current spike in inflation energy based, due to the Middle East, the Bank of England has very little control over the path for overall inflation, so a rise now could cause more economic pain at a time when eyes are on Budget speculation.
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eyes → base → speculation
He added: 'That said, markets still expect the BoE to raise rates at least once this year and a few more times into next.
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BoE → add → next
There is an argument that it could end up being too slow to respond to inflation should these energy price rises seep into other parts of the economy and become entrenched.
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rises → be → economy
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This → take → commission
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they → choose → team
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This → affect → independence
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