Hold fire! The Bank of England kept its interest rate unchanged at 3.75% as expected, but warned of persistent upside risks to inflation.

The Bank of England held its base interest rate steady on Thursday, but clearly signaled it stands ready to tighten monetary policy if elevated energy prices trigger broad and sustained inflationary pressures. This stance aligns with the Federal Reserve’s decision announced the same day. The Monetary Policy Committee (MPC) voted to maintain the base rate at 3.75%, a level unchanged since December last year. Bank of England Governor Andrew Bailey stated: "Our duty is to ensure any rise in inflation remains temporary." Three of the nine MPC members voted to raise the base rate to 4%, reflecting heightened concern among some officials about the risk of second-round inflation effects. The pound edged up 0.08% against the U.S. dollar following the announcement, trading at $1.3376. Felix Feather, economist at Aberdeen, remarked, "This pause is slightly more hawkish than expected." Widening divergence: Three members advocated raising rates to 4% Among the nine MPC members, Megan Greene, Huw Pill, and Catherine Mann voted to raise the base rate by 25 basis points to 4%, while the remaining six voted to hold. Greene noted that UK inflation has exceeded the target for approximately five consecutive years, and that a second critical energy chokepoint—this time in the Red Sea—coupled with AI hardware supply-chain constraints, is imposing additional supply-side pressure on markets. She stated, "Acting pre-emptively with a rate hike could reduce the likelihood of second-round inflation becoming entrenched." Pill emphasized the "profound uncertainty" surrounding energy price outlooks, warning that such uncertainty "may persist for an extended and indeterminate duration," rendering fine-tuned monetary policy adjustments perilous. He explicitly stated that raising rates now would "send a clear and unambiguous signal to markets that we are both willing and able to respond to inflationary risks emanating from Gulf-region developments."

Historic two-round vote! The Bank of England cut rates by 25 basis points as expected—but rising inflation risks have intensified internal divisions.

After a hard-fought decision reached through a historic 'two-round vote,' the Bank of England’s Thursday announcement conveyed heightened caution: it not only warned that inflation may persist into 2027, but also issued an unusual risk alert regarding its quantitative tightening (QT) program—hinting it may slow the pace of balance-sheet reduction in September to avoid exacerbating stress in the gilt market. The Bank of England announced a 25-basis-point rate cut on Thursday, in line with market expectations. The new policy rate stands at 4%, down from the previous 4.25%. Yet, among the nine Monetary Policy Committee members, an unprecedented 'two-round vote' unfolded—four members opposed the cut outright, underscoring deepening internal policy rifts amid persistent inflationary pressures. Following the announcement, the pound rose approximately 30 pips against the U.S. dollar, trading at $1.3411. Traders scaled back bets on further Bank of England easing, now pricing in just 17 additional basis points of cuts this year. Governor Bailey described the decision as "finely balanced" and stressed that future cuts must proceed "gradually and cautiously." Historic first 'two-round vote' leaves the committee in rare disarray In an extraordinary move, the Bank of England conducted two rounds of voting. In the first round, four members supported a 25-basis-point cut, four favored holding rates steady, and the ninth member—external MPC member Alan Taylor—voted for a more aggressive 50-basis-point cut, resulting in a 4–4–1 deadlock. In the second round, Taylor switched his vote to support the modest 25-basis-point cut, enabling the proposal to pass by a narrow 5–4 margin—the first time in the Bank of England’s history that two separate interest-rate votes were held during a single meeting. Notably, Deputy Governor Clare Lombardelli cast her first-ever vote in opposition to Governor Bailey, joining the 'hold' camp alongside Chief Economist Huw Pill. Inflation forecasts revised upward; target delayed to 2027 In its meeting minutes, the Bank acknowledged that medium-term upside inflation risks had "risen slightly" since May—particularly as food price increases could intensify wage negotiations and lift longer-term inflation expectations. The Bank’s latest forecast shows UK inflation peaking at 4% in September—higher than the prior projection of 3.7%. Meanwhile, the timeline for inflation returning to the 2% target has been pushed back to Q2 2027—three months later than previously anticipated. Notably, UK CPI has exceeded the 2% target for over three years straight—since May 2021—indicating structural price pressures remain unresolved. Opponents of the cut fear that premature policy loosening could erode public confidence in the Bank’s ability to control inflation, potentially triggering runaway inflation expectations. Pill stated in his remarks: "Current inflation risks remain high, and vigilance should not be relaxed lightly."

Bank of England's Greene says inflation risks are bigger than thought

Oct 20, 2026

Bank of England policymaker Megan Greene cites energy price shocks from the Iran war as a major inflation risk, urging higher interest rates to mitigate second-round effects on the economy.

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Bank of England's Greene says inflation risks are bigger than thought

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