Central banks
Bank of England weighs a November hike as UK inflation data for September arrives
The Bank of England held Bank Rate at 3.75% in September by a 6 to 3 vote and expects inflation near 3.75% by year end. September CPI figures are due on October 21.
Key points
- Bank Rate was held at 3.75% in September; three of nine policymakers voted to raise it to 4%.
- UK CPI inflation was 3.1% in August, with motor fuel prices up 23% over the year; the Bank expects around 3.75% in the fourth quarter.
- The ONS publishes September inflation on October 21; the next rate decision is on November 5.
The Office for National Statistics publishes UK consumer price inflation for September on October 21, the last inflation reading before the Bank of England's Monetary Policy Committee meets on November 5. At its previous meeting, which ended on September 16, the committee held Bank Rate at 3.75 percent by a vote of six to three, with Megan Greene, Catherine Mann and Huw Pill preferring an increase to 4 percent.
Inflation has been rising. The ONS reported that CPI inflation rose to 3.1 percent in the 12 months to August, up from 2.9 percent in July, with CPIH at 3.3 percent. Core inflation was unchanged at 2.6 percent and services inflation at 3.4 percent, while goods inflation rose to 2.7 percent, its highest since September 2025. Transport, and motor fuels in particular, made the largest upward contribution: motor fuel prices were 23.0 percent higher than a year earlier, and petrol averaged 161.3 pence per litre, the highest since November 2022.
The Bank's own projections point higher. In the minutes of the September meeting, the committee said CPI inflation is expected to reach around 3.75 percent in the fourth quarter of 2026 and slightly above 4 percent in the first quarter of 2027, compared with 3.2 percent projected in July. About 0.7 percentage points of the overshoot above the 2 percent target came from direct energy effects, mostly motor fuels, after what the Bank called the "protracted conflict in the Middle East" pushed up crude and refined energy prices.
The majority that voted to hold cited weak labour demand, restrictive financial conditions and little evidence yet of second-round effects on wages and prices. The dissenters argued that waiting for definitive evidence would leave policy "behind the curve." The committee said risks to the inflation outlook are "tilted to the upside" and that it "stands ready to act as necessary," and Governor Andrew Bailey said that if the conflict persists and second-round risks grow, policy "may have to tighten." The minutes noted that market interest rate expectations rose after the meeting, with the curve peaking around 4.9 percent by the end of 2027.
The committee also voted unanimously to run down its gilt holdings to zero over several years, through annual sales of 20 billion pounds alongside maturing bonds, an average reduction of about 46 billion pounds a year until September 2034.