What happened
The Bank of England's Monetary Policy Committee (MPC) voted by a majority of 6-3 to maintain Bank Rate at 3.75% at its meeting ending on 16 September 2026, the Bank said on 17 September. Three members voted to increase Bank Rate by 0.25 percentage points, to 4%.
The MPC also voted unanimously to reduce to zero the stock of UK government bond purchases held for monetary policy purposes. This will be conducted through a multi-year plan, unwinding the remaining stock at an annual average pace of £46bn by the end of 2034, through annual sales of £20bn alongside maturing gilts.
On inflation, the committee noted UK CPI inflation increased to 3.1% in August, above the 2% target and likely to rise further. Based on energy prices at close of business on 14 September, CPI was expected to increase to around 3.75% in the fourth quarter of 2026 and to reach slightly above 4% in the first quarter of 2027. Services inflation was 3.4% in August.
The context
The committee attributed the pressure to a war-related energy shock. "Protracted conflict in the Middle East has contributed to further increases in crude and refined energy prices since the previous meeting, which remain more volatile and higher than pre-conflict" (translated is not required: source in English), the Bank said. The spot prices of Brent crude and UK wholesale gas had risen by 36% and 78% respectively since the July Monetary Policy Report, reflecting events in the Middle East and in Ukraine and Russia. At close of business on 14 September, Brent had reached $106 per barrel and UK wholesale gas 207 pence per therm.
Around 0.7 percentage points of the 1.1 percentage point overshoot relative to target was driven by the direct effects of energy prices, mostly motor fuels. The August reading triggered an exchange of open letters between the Governor and the Chancellor of the Exchequer, published alongside the minutes. Ofgem's headline energy price cap for October to December was set to rise to £1,723, higher than expected in July.
The committee said there had been little evidence so far of material second-round effects in price and wage-setting. Underlying private sector wage growth was judged to be around 3.5%. GDP had risen 0.4% in the second quarter, slightly above the July forecast.
Why it matters
The committee judged that the risks to the inflation outlook are tilted to the upside, and more so than at the time of the July report. On guidance, it said it "stands ready to act as necessary to ensure that CPI inflation remains on track to meet the 2% target in the medium term", leaving the door open to further tightening should the energy shock persist.
The decision to end active gilt purchases and set out a sales path amounts to a firmer quantitative tightening framework. By committing to annual sales of £20bn alongside maturing gilts, the Bank signalled a steady, pre-announced pace of balance-sheet reduction rather than discretionary long-dated sales.
UK financial conditions had tightened further since July, driven by higher short-term overnight index swap rates, with pass-through to household and business lending. The quoted rate on two-year fixed-rate mortgages was around 95 basis points higher than before the conflict.
What to watch
The next MPC decision is due on 5 November 2026. Markets had priced a prolonged period of unchanged rates in the September Market Participants Survey, but the short-term interest rate curve was upward sloping, peaking at around 4.9% by end-2027, with market intelligence pointing to a rising perceived probability of near-term increases.
Key signals include the trajectory of Brent and UK gas prices, the scale of the 2027 Q1 energy price cap increase, 2027 pay settlements and any evidence of second-round effects in wages and prices. Food inflation, expected around 4% at end-2026 but with upside risks into 2027, is another indicator the committee flagged.