London, United Kingdom. The Bank of England left its benchmark interest rate unchanged at 3.75% on Thursday, with three members of its Monetary Policy Committee voting for an increase to 4%.
Committee vote
The Monetary Policy Committee voted 6-3 to maintain the Bank Rate, compared with expectations in a Reuters poll for a 7-2 split.
Catherine Mann joined Megan Greene and Chief Economist Huw Pill in supporting a quarter-percentage-point increase. Mann had previously raised concerns about the policy stance.
Governor Andrew Bailey and the other members maintained a wait-and-see approach, aimed at preventing inflation from exceeding the Bank’s 2% target by too much this year.
“Holding Bank Rate is appropriate as global conditions look to be more uncertain and inflationary, while domestic conditions are on balance more benign as regards the prospects for inflation,” Bailey said.
Inflation outlook
The Bank said renewed conflict between the United States and Iran had increased uncertainty in global conditions.
Its central forecast projected inflation would rise to 3.2% later this year, from a 15-month low of 2.6% in June. Inflation is expected to remain above the 2% target until early 2028, when it would fall below that level.
The forecast assumes energy prices broadly follow market expectations and that higher energy costs have limited effects on wages and price-setting. It represents a softer outlook than the Bank’s full quarterly forecast in April, while remaining similar to its June projection.
Government measures
The Bank said the new government’s plan to remove a tax on household electricity bills would reduce inflation by 0.1 percentage points.
Prime Minister Andy Burnham has made cost-of-living measures a priority. Continued stability in interest rates would provide relief to the government, according to the report.
The Bank’s forecast is based on financial market expectations that interest rates will increase in the final quarter of 2026 and again in 2027. Most economists surveyed by Reuters expect the Bank to avoid further monetary tightening.