BoE Set To Resist The Urge To Hike But Pressure Is Mounting
- MPC widely expected to hold rates in 6-3 vote - Domestic price pressures remain subdued - Overseas tensions continue to mount - November rate increase remains a possibility - Announcement due 12:00 BST/ 11:00 BST
LONDON – Despite an external energy shock continuing to lift the headline inflation rate, the absence of second-round effects is expected to keep Bank of England policymakers sitting on their collective hands.
The latest polls continue to forecast that the BoE’s Monetary Policy Committee will vote 6–3 in favour of keeping the Bank Rate unchanged at 3.75% when it announces its decision at midday London time on Thursday. Huw Pill, Megan Greene and Catherine Mann are again expected to be the three dissenters.
With the rate decision and voting pattern seen as a foregone conclusion, central bank watchers will look for any change in the committee’s language and sentiment.
Some analysts believe the MPC’s tone is likely to become more cautious in light of the renewed escalation in the Middle East and rising energy prices.
“The recent increase in energy prices is likely to be a concern for the MPC, as the Committee has previously argued that a more persistent energy shock would imply a greater risk of second-round effects,” UBS’s Ana Titareva posited.
Domestic pressures remain contained
The MPC has been able to draw on the latest national data ahead of its meeting this week.
On Tuesday, the UK released its latest labour market figures, reporting that conditions remained broadly stable, with employment and unemployment rates largely unchanged in the latest period.
Regular pay growth was 3.5%, remaining stable for five consecutive three-month periods, while total pay growth came in at 3.9%, down from 4.2% and its weakest since 2020.
A day later, inflation data showed a second consecutive rise in headline CPI. However, August’s increase in consumer inflation was principally driven by an external energy shock, with core and services inflation stable.
External pressures building
Pressure on the Bank to act has increased following rate hikes by the Federal Reserve and the European Central Bank this month, with the Bank of Japan poised to raise its own rate on Friday.
Nonetheless, HSBC’s Anja Sabine Heimann noted that there was scant evidence of significant changes in wages and price-setting behaviour so far. She added that, in a briefing to Parliament, Governor Andrew Bailey suggested that market pricing—around one percentage point of tightening by next July- was too aggressive.
“But with other central banks hiking, the risk of a UK rate rise in November is high if energy prices fail to come down,” Heimann said.
Analysts have also pointed to the recent spike in bond yields and the knock-on de facto tightening this would naturally have on market conditions.
In addition, UBS’s Titareva said: “While we continue to believe that a weaker starting point for the economy and labour market than in 2022 should allow the Bank to address the risk of second-round effects by keeping rates at their current restrictive level for longer, rather than hiking, we acknowledge that reputational and risk-management considerations could tilt the Bank towards pre-emptive hikes.”
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- MPC widely expected to hold rates in 6-3 vote
- Domestic price pressures remain subdued
- Overseas tensions continue to mount
- November rate increase remains a possibility
- Announcement due 12:00 BST/ 11:00 BST
By Harry Daniels
LiveSquawk News
@HarryDaniels71
18:00 GMT | 16 September 2026
LONDON – Despite an external energy shock continuing to lift the headline inflation rate, the absence of second-round effects is expected to keep Bank of England policymakers sitting on their collective hands.
The latest polls continue to forecast that the BoE’s Monetary Policy Committee will vote 6–3 in favour of keeping the Bank Rate unchanged at 3.75% when it announces its decision at midday London time on Thursday. Huw Pill, Megan Greene and Catherine Mann are again expected to be the three dissenters.
With the rate decision and voting pattern seen as a foregone conclusion, central bank watchers will look for any change in the committee’s language and sentiment.
Some analysts believe the MPC’s tone is likely to become more cautious in light of the renewed escalation in the Middle East and rising energy prices.
“The recent increase in energy prices is likely to be a concern for the MPC, as the Committee has previously argued that a more persistent energy shock would imply a greater risk of second-round effects,” UBS’s Ana Titareva posited.
The MPC has been able to draw on the latest national data ahead of its meeting this week.
On Tuesday, the UK released its latest labour market figures, reporting that conditions remained broadly stable, with employment and unemployment rates largely unchanged in the latest period.
Regular pay growth was 3.5%, remaining stable for five consecutive three-month periods, while total pay growth came in at 3.9%, down from 4.2% and its weakest since 2020.
A day later, inflation data showed a second consecutive rise in headline CPI. However, August’s increase in consumer inflation was principally driven by an external energy shock, with core and services inflation stable.
Pressure on the Bank to act has increased following rate hikes by the Federal Reserve and the European Central Bank this month, with the Bank of Japan poised to raise its own rate on Friday.
Nonetheless, HSBC’s Anja Sabine Heimann noted that there was scant evidence of significant changes in wages and price-setting behaviour so far. She added that, in a briefing to Parliament, Governor Andrew Bailey suggested that market pricing—around one percentage point of tightening by next July- was too aggressive.
“But with other central banks hiking, the risk of a UK rate rise in November is high if energy prices fail to come down,” Heimann said.
Analysts have also pointed to the recent spike in bond yields and the knock-on de facto tightening this would naturally have on market conditions.
In addition, UBS’s Titareva said: “While we continue to believe that a weaker starting point for the economy and labour market than in 2022 should allow the Bank to address the risk of second-round effects by keeping rates at their current restrictive level for longer, rather than hiking, we acknowledge that reputational and risk-management considerations could tilt the Bank towards pre-emptive hikes.”