The Bank of England’s Monetary Policy Committee (MPC) voted 6-3 to leave Bank Rate unchanged at 3.75% at its September meeting. Three members – Huw Pill, Catherine L Mann and Megan Greene – again voted for a 0.25 percentage point increase, which would have taken the Bank Rate to 4%.
The decision comes against a backdrop of renewed inflationary pressure from higher global energy prices. UK CPI inflation rose to 3.1% in August, and the Bank expects inflation to increase further, reaching around 3.75% in the final quarter of 2026 and slightly above 4% in early 2027, based on energy prices prevailing in mid-September. The Bank stressed that the outlook remains highly dependent on the scale and duration of the energy shock and whether higher costs begin to feed into wages and wider prices. The Bank of England Governor Andrew Bailey stated: “So far, higher global energy costs have had a limited effect on price and wage setting in the UK. But the longer this volatility persists, the bigger the impact it will have on inflation, and the more likely it is we will need to raise Bank rate to ensure that inflation falls back to our 2% target.”
At the same time, domestic inflationary pressures have continued to ease and the labour market remains relatively soft. UK GDP grew by +0.4% in Q2 2026, slightly stronger than expected, while July GDP also increased by +0.4%. The MPC judged that subdued demand, labour-market slack and already-tight financial conditions should continue to restrain inflationary pressures.
The international backdrop has also shifted. The US Federal Reserve raised its policy rate by 0.25 percentage points on 16 September, to 3.75-4.00%, citing elevated inflation and the need to support a return to its 2% target. The European Central Bank also raised its three key interest rates by 0.25 percentage points on 10 September, taking its deposit facility rate to 2.50%. The ECB said the Middle East conflict was generating inflationary pressures and expected euro-area inflation to average 3.0% in 2026.
For UK manufacturers, the combination of higher energy costs and elevated interest rates presents a difficult backdrop. The Bank noted that short-term market interest rates have risen in the UK, US and euro area since the energy shock began, with higher borrowing costs already feeding through to households and businesses.
Overall, the latest decision points to a prolonged period of relatively tight monetary conditions. Bank Rate remains unchanged for now, but the MPC’s increased concern about inflation risks means that further rate increases remain possible if higher energy prices begin to generate broader second-round effects. The Bank emphasised that monetary policy is not on a pre-set path and will respond to how the inflation outlook develops.
For more details, you can get the Monetary Policy Summary and minutes of the MPC meeting from the Bank’s website at https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2026/september-2026 or request this from MTA.