Bank of England holds rate at 3.75% amid energy-driven inflation concerns
The Bank of England kept its key rate unchanged at 3.75% and warned that prolonged high energy prices could require tighter monetary policy.
London, United Kingdom. The Bank of England held its key interest rate at 3.75% on Thursday, while signalling a more cautious monetary policy stance as higher energy prices add to inflation pressures.
The central bank said inflation could exceed 4% in early 2027 if energy prices remain elevated, while Barclays and JPMorgan forecast possible rate increases later this year and in early 2027.
Inflation outlook
UK inflation reached 3.1% in August, above the Bank of England’s 2% target, with energy costs identified as a key source of pressure.
The bank said higher energy costs could gradually feed through to household bills, transport and product prices, potentially pushing inflation above 4% in early 2027 if prices remain high.
Bank of England Governor Andrew Bailey said the impact of the energy crisis on overall inflation had so far been relatively limited, but warned that sustained high prices could create more persistent inflationary pressures.
“If the conflict in the Middle East is prolonged and the risk of second-round effects on prices and wages increases, monetary policy may need to become tighter,” Bailey said.
Rate expectations
The Bank of England’s next rate-setting meeting is scheduled for November 5. Barclays expects a 25-basis-point rate increase, citing the risk that the continuing Middle East conflict could lead to more persistent inflation.
Barclays analysts, led by Jack Meaning, also said there could be scope for another quarter-point increase in February 2027 if the conflict continues.
JPMorgan’s expectations are broadly aligned with Barclays, with the bank forecasting rate increases in November 2026 and February 2027. JPMorgan had previously expected one increase in November followed by two rate cuts in 2027.
Bond sales programme
The rate decision was accompanied by a change to the Bank of England’s balance-sheet reduction programme.
The central bank froze active sales of government bonds for six months and halted sales of longer-term bonds after heavy pressure on the UK bond market.
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