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, yet clearly signaled that 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 in favor of raising the base rate by 25 basis points to 4%, reflecting heightened concern among some officials about the risk of second-round inflation effects. Following the announcement, the pound edged up 0.08% against the U.S. dollar to $1.3376. Felix Feather, economist at Aberdeen, remarked: "This pause by the Bank of England is slightly more hawkish than anticipated." Widening dissent: Three members advocated raising the rate to 4% Among the nine MPC members, Megan Greene, Huw Pill, and Catherine Mann voted for a 25-basis-point hike 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 the outlook for energy prices, cautioning that this uncertainty "could persist for an extended and indeterminate period," 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 developments in the Gulf region."

Exness: Oil prices remain elevated—can the Bank of England continue its dovish stance?

At its July meeting, the BoE voted 6–3 to hold rates at 3.75%. Although the number of members supporting a hike rose from two to three, the majority still believes domestic inflationary pressures in the UK are easing—particularly given cooling in the labor market, and the fact that energy price increases have yet to meaningfully feed through into wages and services prices. Consequently, they see no urgent need for further policy tightening. Governor Bailey subsequently downplayed market speculation about consecutive rate hikes. The issue is that oil prices were still hovering near $90 at the time. According to Eric, an analyst at Exness, what the central bank has always truly feared is not merely rising oil prices per se, but whether those higher energy costs will ignite a second round of inflation—where firms pass on higher input costs to consumers, workers demand higher wages due to rising living costs, and those wage increases, in turn, push up service-sector prices. If it’s just pricier gasoline, the BoE can tolerate it. But if oil-driven cost pressures begin feeding into wages and services inflation, the BoE will find it extremely difficult to remain dovish. At present, this question remains unresolved. UK CPI for July rose from 2.6% to 2.9%, while services inflation remained stubbornly high at 3.6%. Meanwhile, UK GDP growth for July came in at 0.4%, beating market expectations—and suggesting the economy, at least for now, is not so weak as to completely eliminate the BoE’s room to hike rates. As a result, the UK currently faces an awkward combination: the economy is neither strong nor weak enough to dismiss inflation concerns outright, yet energy prices are once again pushing inflation risks upward. That is precisely why—even without a rate hike—the pound may react strongly to this week’s BoE meeting. Markets currently assign only around a 30% probability to an immediate 25-basis-point hike in September, so holding rates at 3.75% itself is unsurprising. What truly matters is whether the previously dovish majority of six members is beginning to waver. If the BoE continues to stress that the labor market is cooling and domestic price pressures are improving—and maintains that the energy shock has not yet meaningfully spilled over—markets may start questioning whether the currently priced-in expectation of a November rate hike is overly aggressive.

Sterling Drifts as BoE Rate Decision Looms Amid Energy Price Concerns

Nov 2, 2026

The pound remained broadly steady as investors await a Bank of England rate hike, driven by inflation concerns linked to rising energy prices and Middle East geopolitical tensions.

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