Bank of England holds rate at 3.75% as energy shock lifts inflation
The Bank of England kept its benchmark rate at 3.75%, with three members favouring a rise, as energy costs drive inflation higher.
The Bank of England left its benchmark interest rate unchanged at 3.75 percent on Thursday, choosing to wait as a sharp run-up in global energy costs feeds through to British consumer prices.
The Monetary Policy Committee's decision was not unanimous. Six members backed holding the rate, while three voted to raise it by a quarter of a percentage point to 4 percent.
According to the central bank, energy markets have moved sharply since its July Monetary Policy Report. Spot prices for Brent crude have climbed 36 percent over that stretch, while British wholesale gas prices have risen 78 percent, with both remaining volatile.
The inflation backdrop has already shifted. Data from the Office for National Statistics on Wednesday showed the consumer price index rising 3.1 percent year on year in August, up from 2.9 percent in July. On a monthly basis, motor fuels made the largest upward contribution.
The bank expects price growth to accelerate further, projecting CPI inflation of around 3.75 percent in the final quarter of 2026 and slightly above 4 percent in the first quarter of 2027, based on energy prices at the close of business on Monday.
Andrew Bailey, the bank's governor, said the pass-through of higher global energy costs into UK price and wage setting has so far been limited. He cautioned, however, that the longer the volatility lasts, the greater its effect on inflation will be, and the more likely it becomes that the bank rate will need to rise to bring inflation back to the 2 percent target.
Bailey also noted that monetary conditions in Britain have tightened considerably this year, since markets had anticipated rate cuts that have not materialised.
The bank said policy is being set to return inflation sustainably to 2 percent as the economy absorbs the energy shock, adding that the stance required will depend on how large and how long-lasting that shock proves to be and how it travels through the economy. It further observed that, given the lag before inflationary pressures spread, waiting too long for evidence that inflation is becoming entrenched before acting could prove costly.