Rates Remain Unchanged for Now
The Bank of England kept its main interest rate at 3.75% but indicated that an increase could arrive soon. The decision reflected growing concern about inflation linked to the Iran war.
Six members of the Monetary Policy Committee supported holding rates steady, while three favored a quarter-point increase to 4%. Financial markets expect a hike at either the November or December meeting.
Governor Andrew Bailey said higher global energy costs have had only a limited effect on British prices and wages so far. Continued volatility, however, would make action more likely.
Energy Costs Threaten the Inflation Outlook
The central bank now expects inflation to rise from 3.1% to around 4% in the first quarter of next year. Higher domestic energy bills would move it further above the official 2% target.
British interest rates had been falling from a 15-year high of 5.25% before the United States and Israel attacked Iran in late February. The conflict then drove oil and gas prices sharply higher.
The Strait of Hormuz has remained largely closed to traffic during the war, disrupting a crucial route for energy supplies. Other central banks have already responded to inflation risks by raising borrowing costs.
November Could Bring a Change of Course
The Bank of England will meet again on November 5 with updated quarterly economic forecasts. Economist Felix Feather described that meeting as a natural starting point for a new cycle of rate increases.
Higher interest rates would affect mortgages and personal loans, increasing costs for households and borrowers. They would also raise the government’s debt-servicing burden, which already consumes a growing share of public spending.
Before the November meeting, the government will present its annual budget. Its tax and spending decisions could change the inflation outlook and influence whether policymakers decide that an immediate increase is necessary.
References
Pylas, P. (2026, September 17). Bank of England holds rates but appears ready to hike soon. AP News. https://apnews.com/article/britain-economy-interest-rates-9d2abfcda73347ccb1a19dd39f1c06c8