The Bank of England left Bank Rate unchanged at 3.75% by a 6–3 vote, but the decision was less comfortable than the headline majority suggests. External MPC members Megan Greene and Catherine Mann, together with Chief Economist Huw Pill, again voted for an immediate 25bp increase to 4.00%. Within the hold camp, Bank of England Governor Andrew Bailey, Deputy Governor Sarah Breeden, Deputy Governor Clare Lombardelli and Deputy Governor Dave Ramsden all indicated that persistent energy pressure or growing second-round inflation risks could strengthen the case for tightening. That leaves the committee with a substantially broader hawkish tilt than the formal split alone implies.
The change in the inflation outlook was substantial. Since the July Monetary Policy Report, Brent crude and UK wholesale gas prices have risen 36% and 78%, respectively. The BoE now expects CPI inflation to reach around 3.75% in Q4, compared with 3.2% previously, before moving slightly above 4% in Q1 2027. There has been little evidence so far that the shock is spreading materially into wages and non-energy prices. However, the MPC warned that pass-through may have been delayed by corporate hedging, reserve drawdowns and margin compression rather than permanently avoided.
The six-member majority judged that existing restraint provided time to assess those second-round effects. UK financial conditions have already tightened sharply, with two-year fixed mortgage rates around 95bp higher than before the conflict and the OIS curve peaking near 4.9% by end-2027. Wage growth has moderated and the labour market retains some slack, but the protection provided by weak demand is becoming less certain. Q2 GDP grew 0.4%, July output rose another 0.4%, and the BoE raised its Q3 growth estimate from 0.1% to 0.4%. Bank of England Governor Andrew Bailey said persistent conflict and rising second-round risks would likely require policy to tighten, while other members of the hold majority also described the case for action as building.
The MPC separately voted unanimously to reduce its monetary-policy gilt portfolio to zero by September 2034. After setting aside GBP 120bn of gilts to back banknote issuance, the remaining GBP 368bn will be unwound at an average annual pace of GBP 46bn, including GBP 20bn of yearly active sales alongside maturities. For Bank Rate, the September decision represents a conditional hold rather than a neutral pause. The key question before the November 5 meeting is whether the projected rise above 4% begins affecting wage settlements, services prices and inflation expectations strongly enough to move additional members into the hike camp.
MPC member views in one line
Voted to hold Bank Rate at 3.75%
- Governor Andrew Bailey: Limited pass-through and soft employment justify waiting, but prolonged conflict and rising second-round risks would likely require tightening.
- Deputy Governor Sarah Breeden: Restrictive financial conditions provide time, but a larger and longer energy shock makes an eventual rate response increasingly likely.
- External MPC Member Swati Dhingra: Weak demand, economic slack and limited pass-through argue for waiting for clear evidence rather than tightening pre-emptively.
- Deputy Governor Clare Lombardelli: Financial conditions still restrain inflation, but delayed energy pass-through means the case for a hike is building as the conflict persists.
- Deputy Governor Dave Ramsden: Domestic inflation is currently benign, but resilient activity and accumulating external pressures could create a case for higher rates.
- External MPC Member Alan Taylor: Bank Rate and market rates are already restrictive, so policy should respond to demonstrated propagation rather than volatile headline energy prices.
Voted to raise Bank Rate to 4.00%
- External MPC Member Megan Greene: Economic slack may have peaked, and waiting for definitive second-round effects risks leaving policy behind the curve.
- External MPC Member Catherine Mann: Inflation above 4% during wage negotiations demands a preventive hike because financial conditions may not be restrictive enough.
- Chief Economist Huw Pill: An immediate hike would reinforce the inflation mandate and prevent energy, fiscal and global supply pressures from becoming embedded.
Practical committee map
- Immediate hikers: Greene, Mann and Pill.
- Conditional holders leaning toward action: Bailey, Breeden, Lombardelli and Ramsden.
- Evidence-first holders: Dhingra and Taylor.
This makes the committee look considerably more hawkish than a simple 6–3 hold. Another two members moving from the conditional group would produce a five-vote majority for a hike.
Key takeaways
- The BoE held Bank Rate at 3.75% by 6–3, with three members already supporting an immediate increase to 4.00%.
- Four of the six holders explicitly indicated that persistent energy pressure or emerging second-round effects could strengthen the case for tightening.
- The majority’s decision to wait rests on restrictive market rates, economic slack and the limited pass-through of energy costs into wages and broader prices.
- That protection may be weakening. The BoE upgraded Q3 growth from 0.1% to 0.4%, while employment indicators suggest that the expansion in slack may be stabilising.
- Inflation is expected to rise to approximately 3.75% in Q4 and slightly above 4% in Q1 2027, largely because of energy.
- The key divide is whether policymakers should act before second-round effects become visible. The three dissenters favour preventive risk management; Dhingra and Taylor want clearer evidence.
- The November 5 decision will depend less on headline CPI itself than on wages, services inflation, expectations and evidence of corporate cost pass-through.
- The unanimous QT decision will reduce the monetary-policy gilt portfolio by an average GBP 46bn annually, with completion planned for September 2034.
