Bank of England set to defy Fed’s rate-hike lead, despite rising inflation
The Bank of England is expected to keep rates steady Thursday, even after U.K. inflation rose to 3.1% and energy costs keep pressure on prices.
The Bank of England is expected to keep its benchmark interest rate unchanged on Thursday even though the latest inflation data showed a rise that pushes the rate well above the central bank’s 2% target. Market pricing from LSEG indicates more than an 80% probability of a hold, while analysts anticipate a minimum 25‑basis‑point increase at the November meeting. This stance would set the U.K. apart from other major central banks that have already moved to tighten policy.
Rate Decision
The Federal Reserve announced a 0.25‑percentage‑point hike on Wednesday, marking its first increase since 2023. In Europe, the European Central Bank delivered its second rate rise of the year after a June move that ended a three‑year pause. The Bank of Japan is also projected to lift its key rate at the close of a two‑day policy session on Friday. By contrast, the Bank of England’s last policy change came in December, when it trimmed rates by 25 basis points.
Inflation Spike
Data released on Wednesday by the Office for National Statistics showed U.K. consumer price growth climbing to 3.1% in August, the first time the figure has exceeded 3% since March. The agency identified a sharp 23% year‑on‑year increase in motor fuel prices as the primary driver of the uptick. As a net importer of energy, the United Kingdom remains exposed to external price shocks, and the nation continues to wrestle with a cost‑of‑living squeeze linked to post‑COVID inflation and the lingering effects of the Russia‑Ukraine conflict on natural‑gas supplies.
Bond Market Pressure
British government bonds, known as gilts, have felt the strain of global inflation worries, political uncertainty and concerns over U.K. fiscal policy. The country now carries the highest borrowing costs among G7 members, with yields on long‑dated 20‑ and 30‑year gilts edging toward the 6% level. Earlier this week, The Telegraph reported that the Bank of England plans to cease selling those long‑term gilts alongside its upcoming policy announcement.
Analyst Views
Scott Gardner, an investment strategist at J.P. Morgan Personal Investing, said the latest inflation rise is “unlikely to convince the Bank of England to hike interest rates just yet,” though it may revive worries about future price pressures among policymakers. Deutsche Bank FX strategist Shreyas Gopal noted that the lack of any markedly hawkish surprises in both the U.K. labor market and the inflation report has been sufficient for market pricing of rate hikes at the November meeting to retreat once more. As the decision day approaches, market participants will be watching closely for any signals that could reshape expectations for the Bank’s next move.
Source: CNBC · 2026-09-17