HighIV Macro Policy & Sovereign Debt17 September 2026, Thursday

Bank of England holds the policy rate at 3.75% as three of nine members vote for a rise to 4.00%

The Bank left the rate unchanged for a sixth consecutive time and slowed the pace of its bond sales; August inflation, published a day earlier, rose to 3.1%.

The Bank of England's Monetary Policy Committee held the policy rate at 3.75% on 17 September 2026. As the Seoul Economic Daily reported, it was the sixth consecutive decision to hold since December 2025, with six of the nine members voting to hold and three voting to raise the rate to 4.00%. At the same meeting the pace of the bond sales programme was also slowed; officials estimate that quantitative tightening has pushed gilt yields up by about 0.25 points. The Bank's own page announced that, alongside the decision, a technical briefing for market participants would be held at 15.00.

A day before the decision, Office for National Statistics (ONS) data released on 16 September showed annual consumer price inflation rising to 3.1% in August, from 2.9% in July. Core CPI excluding energy, food, alcohol and tobacco was unchanged at 2.6%, while CPIH, which includes housing costs, stood at 3.3%. The main source of the increase was transport, and fuel in particular: according to the ONS, the price of petrol rose by 9.1 pence a litre and diesel by 14.2 pence in August, taking annual fuel inflation to 23.0%. Governor Andrew Bailey said that the longer volatility in global energy costs persisted, the greater its effect on inflation would be. Sources diverge on market pricing for the November meeting: the Seoul Economic Daily wrote that swap markets put the probability of a 0.25-point increase at about 90%, while BNN Bloomberg reported that markets saw an increase at either the November or the December meeting as more than fifty per cent likely. The difference between these two accounts of pricing could not be independently verified.

Talay assessment

Bottom line

With the BoE holding at 3.75% while three of nine members called for an increase, the committee is shifting towards the inflation side. August inflation rising to 3.1%, with fuel as its main source, shows that the shock is supply-driven but that core is holding at 2.6%. The most likely path is a 0.25-point increase at the November or December meeting if energy prices do not retreat.

Likely effects

Sterling and the gilt marketUncertainWeeks
Three members voting to raise and the slowing of bond sales work in opposite directions: the first affects near-term rate expectations, the second the supply of gilts at longer maturities. The tendency of the yield curve to flatten is strengthening.
British householdsNegativeWeeks
Annual fuel inflation rising to 23.0% directly increases transport costs. Holding the rate at 3.75% keeps variable-rate mortgage payments steady for now, but that cushion is removed if an increase comes in November.
Spillover to TürkiyeNegative1–6 months
Rates turning towards increases in the United Kingdom and the euro area raise the cost of capital flowing to emerging market assets. Türkiye's external borrowing cost and the pressure on the lira may rise through this channel.

Possibilities, ranked

1
A 0.25-point rise in November or December60%
Energy-driven inflation does not retreat and the hawkish minority on the committee becomes a majority; the rate goes to 4.00%.
Watch: The fuel contribution persisting in September and October CPI data, and the distribution of votes at the 5 November meeting.
2
On hold until the end of the year30%
Fuel prices fall back, headline inflation returns below 3% and the committee waits without raising.
Watch: Brent and TTF prices falling back and core CPI dropping below 2.6%.
3
Growth weakens and the cuts debate returns10%
The labour market deteriorates markedly and the committee signals easing despite inflation.
Watch: A rise in the UK unemployment rate and a marked slowdown in the pace of wage growth.

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

Market reaction

Indicators affected

UK policy rate▲ 3.75%
UK August CPI▲ 3.1%
UK fuel inflation▲ 23.0%