BoE Holds Rates But Hawks Gain Ground Ahead of November Decision

The Bank of England (BoE) held its Bank Rate at 3.75% by a vote of 6-3, but the decision was more nuanced than it seemed. The BoE's Monetary Policy Committee (MPC) members are increasingly leaning towards raising interest rates to combat rising inflation and energy costs.

Four out of six MPC members who voted to hold Bank Rate at 3.75% explicitly stated that persistent energy pressure or emerging second-round effects could strengthen the case for tightening policy. These members include Governor Andrew Bailey, Deputy Governors Sarah Breeden and Clare Lombardelli, and Deputy Governor Dave Ramsden.

The BoE's decision was influenced by recent changes in inflation expectations, with CPI inflation now expected to reach around 3.75% in Q4, compared to 3.2% previously, before moving slightly above 4% in Q1 2027. Despite this, the MPC members who voted for an immediate rate hike argue that waiting until clear evidence of second-round effects is visible could leave policy behind the curve.