Bank of England seen holding rates at 3.75% through mid-2027

London, United Kingdom. The Bank of England is expected to keep Bank Rate at 3.75 per cent for the rest of the year and at least through mid-2027, according to a Reuters poll of economists.

Rate expectations

All 65 economists surveyed by Reuters between September 4 and 8 said they expected the Monetary Policy Committee to leave rates unchanged at its September 17 meeting.

Fifty-seven of the 65 economists, or nearly 90 per cent, expected rates to remain on hold for the rest of the year, the same proportion as in a survey conducted three weeks earlier. Eight respondents expected a rate increase to 4.00 per cent by the end of the year.

Since the US-Israeli war on Iran began in late February, a majority of Bank of England watchers have expected no rate increase this year. Economists’ confidence in that outlook has increased in recent months.

Inflation and energy prices

Economists said higher energy prices linked to the conflict may have delayed the prospect of a UK interest rate cut until late next year. Financial markets are pricing in three rate increases through mid-2027, beginning in November.

Brent crude futures are again approaching $100 a barrel as the conflict continues. However, there has so far been no evidence that higher energy costs have fed through into broader inflation, while the economy is expanding at a steady but modest pace.

“For the Bank, there are no flashing warning signs,” said Gabriella Willis, UK economist at Santander CIB.

Inflation, which the Bank of England targets at 2 per cent, was last reported at 2.9 per cent. Policymakers face upside risks to rates ahead of an expected inflation peak later this year.

Financial conditions

A sharp rise in global bond yields in recent weeks has tightened financial conditions and could push mortgage rates higher, giving policymakers further scope to assess the economy’s performance in the coming months.

Three of the nine Monetary Policy Committee members voted for a rate increase at the July meeting, compared with two at the previous meeting. The same split is expected at the September meeting.