NEWS: BOE MAINTAINS BENCHMARK RATE AT 3.75%
THE BOE HOLDS THE LINE AT 3.75% WITH 6-3 MCP VOTE SPLIT WHILE DISSENTERS REGROUP.
On 19/09/2026 and for the 6th consecutive time, the Bank of England (BOE) held its benchmark base rate at 3.75%. The Monetary Policy Committee (MCP) 6-3 vote split mirrored the prior vote 30/07/2026 with the same dissenters arguing for a 4% rate hike. Notwithstanding the ongoing conflict in the Middle East, the comparator ECB and FEDs decisions to hike and the market expectations of a rate hike; the MCP Majority - including Governor Andrew Bailey - voted to 'hold.' Defending the lack of action Mr Bailey dovishly suggested that an increase "may" become necessary should volatility intensify.
MARKET REACTION:
GBP/USD: The pound fell against the dollar finishing weaker at $1.3358 after falling to a low of $1.3336.
Gilt Yields: The 2-year gilt yield dropped 6 basis points to 4.70% while the 10-year fell to 5.24% it lowest in a week. The 30 year fell to 5.74% pushed further by the parallel BoE QT Announcement.
Equities: London's FTSE closed up 1.2%, its highest in a week.
Traders: Trimmed expectations of a future rate hike after the announcement was considered less hawkish than expected.
Next Rate Decision: “Remember, Remember” 5th November 2026.
The BoE MCP meets 8 times per year to consider the benchmark base rate. Thereafter, it publishes its MCP minutes. Those arising from the MCP meeting 17/09/2026 can be viewed by clicking here.
CONTINUED DISSENT
Despite the comparator ECB and FED’s decisions to increase their rates, the BoE MCP split mirrored their 30/07/2026 vote exactly. The dissent which began in April 2026 with Chief Economist Huw Pill arguing for a 0.25% increase continued with with Catherine Mann and Megan Greene maintaining their vote for a “proactive increase” now, rather than risk falling behind the curve.
Oil and gas prices had surged lifting fuel costs which remained volatile and higher than pre-conflict. Equally, UK CPI inflation had increased to 3.1% in August 2026 and the BoE predicted further increases. All 3 dissenters pointed out that the BoE’s own analysis indicated that prices were expected to jump early next year, just at the point when millions of workers agree pay settlements.
(Courtesy of Bloomberg UK)
THE OFFICIAL LINE
The BoE now expects inflation to double the 2% target early next year and reach 4%. On the positive, the BoE has lifted its growth forecast for the third quarter to 0.4%. In prepared focussed remarks, Governor Andrew Bailey described the energy shock resulting from sustained conflict in the Middle East as having a limited effect on prices and wages in the UK.
“The longer volatility persists, the bigger impact it will have on inflation and the ore likely it is we will need to raise the Bank Rate.”
(Governor Andrew Bailey 17/09/2026)
Domestic price pressures in the UK have been surprisingly muted however, the BoE warned that indirect effects may be “delayed rather than diminished.” Price pressures are expected to build in the coming months with the potential for higher food inflation while the surge in AI-related products not limited to microchips continue unabated.
Of the 6 doves voting to do-nothing, Swati Dhingra and Alan Taylor remained the most dovish. They emphasised the slack jobs market and tight financial conditions. The latter, noted in his personal comments that the inflation curve is currently higher than it was in 2022-23 when inflation’s close to 7%.
BOE PAUSES QUANTITIVE TIGHTENING WITH UNFINISHED PLAN
The reaction of the Bond Market in this instance should be read in its wider context. Alongside the Base Rate Decision, the BoE unveiled its plan to overhaul the selling off excess gilts and offer the UK Bonds Markets some much needed relief (‘the BoE QT Announcement’). Until April 2027 the BoE will:
Pause all bond sales from its £488 Billion portfolio.
Stop Selling long-dated bonds altogether. Instead;
Sell gilts maturing between 2035 - 2049 to the Debt Management Office (‘the DMO’) at a rate of £20 Billion per year, rather than directly to the market.
Unwind the QT portfolio by September 2034.
Retain the remaining £120 Billion of long-dated gilts to back cash circulation.
Pursuant to the BoE QT Announcement, the proposals for which have yet to be finalised; the BoE will keep £120 Billion in gilts that mature in 2049 or later and use them as the matching asset against future banknote issuance. Another £222 Billion of gilts that mature by 2035 will be run off. Ultimately, it is for the Treasury to decide whether it will proceed with the BoE’s plans to sell assets to the DMO.
Market Reaction was nearly unanimous in approval:
“This is definitely a positive surprise … The BoE, DMO and the Treasury working closer for soft yield-curve control.”
(Daniel Loughney - Head of Fixed Income at Mediolanum International Funds 17/09/2026).
Under the BoE’s own analysis, Quantitive Tightening (QT) has accrued £110 Billion of losses since 2022. However, prior to that QT had produced some profit. All of which was immediately spent by chancellors, predominately on the expanding welfare bill.
Since the UK Labour Party came to power the UK’s national debt has spiralled to £3 TRILLION and partially as a consequence of the new PM Andrew Burnham’s promise to continue wasting wealth on welfare, the 30 year yield has spiralled out of control to its 1998 peak. Chancellor John Healey (whose namesake was the last Labour Chancellor to request an IMF Bailout’) is due to lay out his 1st budget 28/10/2026 amid the worsening outlook on inflation.
MARKET EXPECTATIONS
ING Think:
"Thursday's Bank of England decision makes clear what we already knew: that the prospect of a November rate hike will depend entirely on energy prices. A hold is still our base case, assuming energy prices cool over the next six weeks. If they don't, then we'd expect the Bank to reluctantly hike rates in November and probably in February too."
You can read their original article by clicking here.
Bloomberg Economics:
“A November hike is on the table if energy prices remain elevated int he run up to that decision. On balance, we think a move is more likely than not. With inflation on course to rise above 4% in the new year, a second hike will probably follow in February.”
You can read their original article by clicking here.
