Bank of England policymakers have held Bank Rate at 3.75% but delivered a more divided assessment of the inflation outlook, with three members of the Monetary Policy Committee voting for an immediate increase to 4% as higher energy prices raise the risk that inflation remains above target for longer.
The MPC voted 6–3 to leave Bank Rate unchanged at its meeting ending on 16 September. Andrew Bailey, Sarah Breeden, Swati Dhingra, Clare Lombardelli, Dave Ramsden and Alan Taylor backed the 3.75% rate, while Megan Greene, Catherine L Mann and Huw Pill preferred a 0.25 percentage point increase to 4%.
The split reflects a deterioration in the near-term inflation outlook since the Bank’s July assessment. UK CPI inflation rose to 3.1% in August and the Bank now expects it to increase further over the coming quarters. Based on energy prices at the close of business on 14 September, its projection puts inflation at around 3¾% in the fourth quarter of 2026 and slightly above 4% in the first quarter of 2027.
Higher crude and refined energy prices linked to the prolonged conflict in the Middle East are central to that change. The Bank said energy prices remain volatile and above pre-conflict levels, increasing the possibility that businesses pass higher costs through to customers and that elevated inflation influences future wage and price-setting decisions. Its assessment is now that risks to the inflation outlook are tilted further to the upside than they were at the time of the July Monetary Policy Report.
The three members who favoured a rate increase placed greater weight on the danger that the energy shock becomes embedded more widely across the economy. Greene, Mann and Pill argued that stronger activity, rising energy and food costs and the timing of the expected inflation peak could increase the likelihood of meaningful second-round effects. They considered a proactive increase to 4% appropriate to help keep inflation expectations anchored.
The majority took a more cautious position. Although concerned about energy prices and the risk of persistent inflation, the six members voting to hold pointed to restrictive financial conditions and continued softness in the labour market as forces that should restrain domestic price pressures. The Bank also said there has so far been little evidence of material second-round effects in price and wage setting.
For finance directors and CFOs, the decision leaves current borrowing costs unchanged but makes the path beyond September less predictable. Businesses exposed to energy, transport and supplier costs now face the possibility of inflation remaining above the Bank’s 2% target into 2027 while monetary policy stays restrictive. That combination can affect refinancing assumptions, investment hurdle rates, working-capital requirements and decisions over when to lock in borrowing costs.
The comparison with July is particularly important. The MPC also voted 6–3 to hold Bank Rate at 3.75% at its previous meeting, but CPI inflation was then 2.6% and policymakers expected it to rise later in the year. Inflation has since reached 3.1%, while the Bank’s projection for early 2027 has moved above 4%, strengthening the case for finance teams to stress-test forecasts against a longer period of elevated rates and higher input costs.
The next scheduled Bank Rate decision is due on 5 November. Until then, the direction of energy prices, wage settlements and evidence of cost pass-through into the wider economy will be central to whether the current 6–3 split moves closer to an outright rate increase.
