The Monetary Policy Committee voted 6-3 to leave Bank Rate at 3.75%, with three dissenters pushing for a quarter-point rise to 4%. LSEG data showed markets had assigned a 76% probability to no move on the day, while pricing in a strong chance of at least a 25 basis points increase in November. The backdrop: inflation is still running well above the 2% target, and the Bank has not altered rates since December, when it opted for a 25-basis-point cut.
While the Bank of England paused, other major central banks have been stepping on the brakes. The Federal Reserve lifted rates by a quarter point on Wednesday, its first increase since 2023. A week earlier, the European Central Bank delivered its second hike of the year after a June move that was its first in three years. And the Bank of Japan is anticipated to lift its key rate at the conclusion of its two-day meeting on Friday.
Those favoring a rise cited the uncertainty tied to the Iran war and the importance of getting ahead of any fallout. Catherine L Mann contended that, relative to July - when she likewise supported a hike - the upside risks have grown. According to her, the "sporadic continuance" of the conflict has lifted energy prices far beyond the July Report's baseline, and in the Bank's near‑term outlook, the consumer price index is set to top 4% in early 2027.
Megan Greene - another dissenter from the majority vote - pointed to unknowns around how far second‑round effects from the Iran war might run, together with AI‑related supply bottlenecks and the El Niño climate pattern, as sources of inflation pressure.
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In August, U.K. inflation climbed to 3.1%, marking the first print above 3% since March. The Office for National Statistics said the jump was driven largely by motor fuel, with prices up 23% year over year.
This year, worries over global inflation, geopolitics, and domestic fiscal policy have pressured gilts. Within the G7, Britain faces the highest borrowing costs, with 20‑ and 30‑year yields drifting toward 6%. After Thursday's decision, gilts retreated: the 10‑year benchmark gilt yield dropped 8 basis points to 5.2169%, and the 30‑year was down nearly 12 basis points to 5.7415%.
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For everyday finances, this mix of sticky inflation, a divided committee and shifting global policy keeps borrowing costs and bond yields choppy. The next few inflation prints and signs of a November hike are likely to drive mortgage rates and fixed-income returns most directly.
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