The Bank of England is widely expected to maintain interest rates at 3.75% during its Monetary Policy Committee meeting on Thursday, September 17. Most economists anticipate the nine-person committee will opt for a sixth consecutive hold, keeping the rate at the same level it has occupied since December. The decision comes as policymakers evaluate the economic impact of conflict in the Middle East and its influence on the United Kingdom's economy.
Official figures show that Consumer Prices Index (CPI) inflation rose to 3.1% in August, up from 2.9% in July, representing a five-month high. This figure is above the Bank of England's 2% target. While inflation has increased, services inflation remained steady at 3.4% in August. Charlotte O’Leary, associate economist for the National Institute of Economic and Social Research, noted that there is currently limited evidence of "second-round effects," such as wage demands or broad shop price increases, which may support a decision to hold rates.
Three members of the committee—Huw Pill, Megan Greene, and Catherine Mann—voted to increase rates to 4% at the previous meeting. Economists expect a similar split vote this week. The U.K. decision follows a recent interest rate hike by the European Central Bank and precedes an expected rate increase by the U.S. Federal Reserve on Wednesday, September 16, which would be its first hike since 2023.
The decision affects U.K. households and businesses that rely on borrowing. For a typical dual-fuel household, energy bills are set to rise by 4% in October due to the new Ofgem energy price cap. If the Bank eventually raises rates to 4%, as some committee members have proposed, borrowers with variable-rate mortgages or those seeking new loans would see increases in their monthly interest payments. Conversely, savers would potentially see higher returns on their deposits, though a 3.75% hold means those benefits remain static for now.
Brent crude oil prices rose above $107 a barrel this week. Thomas Pugh, chief economist at RSM UK, forecasts that inflation could peak at nearly 4% by early 2027 before returning to the 2% target in 2028. This upward trend in the cost of energy, food, and memory chips represents an increase in supply chain costs that could lead to higher retail prices.
While a hold is expected this week, economists at Pantheon Economics suggest the committee may adjust its language to prepare for a possible rate hike in November if energy prices continue to climb. The next milestones will be the implementation of the new energy price cap in October and the Bank's subsequent policy announcement in November.