MediumIV Macro Policy & Sovereign Debt25 September 2026, Friday

BoE Governor Bailey says high energy prices make it harder to hold rates at 3.75%; November hike odds 75–80%, 10-year gilt 5.35%

Bank of England Governor Bailey said in Oxford on 25 September that holding rates at 3.75% will become harder as long as energy prices stay high. A day earlier 2 deputy governors also signalled they were moving closer to a hike; the market puts the odds of a November hike at 75–80%.

Location: LONDON

As reported by The Standard, Bailey said at a monetary economics conference at the University of Oxford on Friday 25 September that maintaining the current stance will become harder while high energy prices persist. On 17 September Bailey was part of the 6–3 majority that held rates at 3.75%; according to the Bank of England's decision statement, Greene, Mann and Pill voted for a rise to 4.00%. According to the same statement, August inflation was 3.1%, and around 3.75% is projected for the 4th quarter of 2026 and slightly above 4% for the 1st quarter of 2027; since the July report Brent has risen 36% and UK wholesale gas prices 78%.

According to a report published on AOL, Deputy Governor Lombardelli said on 24 September that if energy prices stay high, policy will increasingly likely need to tighten, and described wage growth consistent with the 2% target as around 3.25%; that report put the probability of a November hike at 75%. The Standard, for its part, wrote that after Bailey's speech the probability was around 80%, with slightly more than 4 quarter-point hikes priced over the next 12 months. According to Trading Economics data, the 10-year gilt yield reached 5.35% on 25 September and the 30-year yield 5.87%; the same source notes that the Budget will be announced on 28 October.

Talay assessment

Bottom line

Eight days after the 6–3 hold decision of 17 September, the language of the Governor and 2 deputy governors has turned towards a hike; this shows the majority is shifting. While the 36% rise in Brent, the 78% rise in wholesale gas and an inflation projection above 4% for early 2027 persist, the most likely path is for the 3-vote minority to become the majority at the November meeting; the 28 October Budget is the second threshold that will determine whether the gilt yield stays around 5.35%.

Likely effects

UK borrowing costsNegative1–6 months
With the 10-year gilt at 5.35% and the 30-year at 5.87%, the more than 4 quarter-point hikes priced in narrow fiscal space in the 28 October Budget.
HouseholdsNegativeWeeks
If a hike to 4.00% comes in November, mortgage costs will be added to the burden on households already squeezed by energy bills; the wage reference was set at 3.25%.
Spillover to TürkiyeNegative1–6 months
With the BoE also moving towards tightening after the ECB and the Fed, the global yield floor for emerging market borrowing is pushed up, adding pressure to Türkiye's external financing costs.

Possibilities, ranked

1
25 basis point hike in November65%
Energy prices stay high, the majority shifts and the rate rises to 4.00%.
Watch: September inflation and the path of Brent and wholesale gas prices
2
Hold in November, hawkish guidance25%
Weakening growth data push the majority to wait one more meeting, while the language stays hawkish.
Watch: Third-quarter growth and employment data
3
Energy retreats, hike postponed10%
A marked fall in energy prices pulls back hike pricing and the gilt yield declines.
Watch: A ceasefire in the Middle East and a sharp drop in gas prices

Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.

Market reaction

Indicators affected

November hike probability▲ 75–80%
10-year gilt▲ 5.35%
30-year gilt▲ 5.87% (+0.03 pts)

Bottom line

Likely effects

Possibilities, ranked

Sources