Bank Rate held at 3.75% as three MPC members vote for an increase

The Bank of England has maintained Bank Rate at 3.75%, but three members of the Monetary Policy Committee voted to increase it to 4%.

The 6 to 3 decision, published on 17 September, reflects growing concern that elevated energy prices could keep UK inflation above target for longer than previously expected.

The Committee said inflation risks had become more skewed to the upside since its July assessment, although there was still little evidence that higher energy costs were feeding materially into broader wage and price-setting behaviour.

The verified decision

Six MPC members voted to leave Bank Rate unchanged at 3.75%. Megan Greene, Catherine Mann and Huw Pill voted for an immediate increase of 0.25 percentage points, which would have taken Bank Rate to 4%.

The Bank said it remained ready to act if necessary to keep inflation on track to return sustainably to its 2% target. The next scheduled interest-rate decision is due on 5 November 2026.

Why three members wanted higher rates

Energy prices have increased significantly since the Bank's July Monetary Policy Report. By 14 September, Brent crude had risen by 36% from the period preceding the July report, reaching $106 per barrel. UK wholesale gas had risen by 78%, reaching 207 pence per therm. Petrol, diesel and aviation-fuel prices had also increased.

The Bank expects CPI inflation to rise to around 3.75% during the final quarter of 2026 and slightly above 4% during the first quarter of 2027, based on energy prices observed on 14 September.

The three members who supported a rate increase judged that acting now would reduce the risk of the energy shock becoming embedded in wages and prices.

Why the majority voted to hold

The majority acknowledged that inflation risks had increased but concluded that the existing policy stance remained sufficiently restrictive.

Financial conditions have tightened, and borrowing rates faced by households and businesses are materially higher than before the conflict-related energy shock. The quoted rate on a two-year fixed mortgage was around 0.95 percentage points higher than before the conflict.

The labour market also remains soft. Unemployment was estimated at 4.9% in the three months to July, while vacancies and payroll employment have declined.

The Committee found little evidence so far of material second-round effects, where higher energy prices lead to persistently higher wages and prices throughout the economy. Several members nevertheless indicated that the case for tightening could strengthen if elevated energy prices persist.

Inflation is expected to rise further

UK CPI inflation increased to 3.1% in August. The Bank calculated that around 0.7 percentage points of the 1.1 percentage point overshoot above its 2% target came directly from energy prices, mainly motor fuels.

Services inflation remained at 3.4%, while private-sector regular earnings growth slowed to 2.9% in the three months to July. The Bank estimated underlying private-sector wage growth at approximately 3.5%.

The October energy-price cap is due to increase to £1,723 and is expected to rise substantially further in early 2027 if wholesale conditions persist. The Bank cautioned that the future inflation path remains highly sensitive to energy prices and geopolitical developments.

A major change to quantitative tightening

The MPC also unanimously agreed a multi-year plan to reduce its remaining stock of government bonds to zero by the end of 2034. The portfolio stood at £488 billion on 16 September.

The Bank plans to unwind the stock at an average pace of £46 billion annually, including £20 billion of annual gilt sales alongside bonds reaching maturity. This process is separate from the immediate Bank Rate decision, but it can influence financial conditions and gilt markets over time.

What the decision means for households

Variable-rate borrowing remains expensive, while mortgage rates reflect both the current Bank Rate and market expectations for future policy.

Savers may continue to benefit from relatively high cash rates, although individual providers can change their products independently of Bank Rate.

The split vote makes an imminent rate reduction look less likely, but it does not guarantee that rates will rise. Future decisions will depend on energy prices, inflation expectations, wage behaviour and economic demand.

What it means for investors

The decision can influence gilt prices and yields, borrowing costs, sterling and the outlook for companies exposed to domestic spending or substantial energy costs. These relationships are not mechanical, and market prices may already reflect some or all of the expected policy path.

The Apolifina view

The unchanged headline disguises a more hawkish decision.

Three members wanted an immediate rate increase, the Bank expects inflation to rise above 4% and several members warned that the case for tightening could build if the energy shock persists.

At the same time, underlying inflation, wage growth and labour demand remain significantly calmer than the headline energy picture. That explains why the majority chose to wait.

The decision therefore signals vigilance rather than a commitment to raise rates. The duration of elevated energy prices, and whether they begin influencing wages and wider prices, will determine what happens next.

Uncertainty

The Bank's inflation projections are conditional on energy prices observed on 14 September. Oil and gas markets are volatile and could move materially in either direction.

The Bank also described the geopolitical outlook as highly uncertain. Its forecast of inflation exceeding 4% is a projection, not a guaranteed outcome.

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