BoE Holds Rates, Warns of Hawkish Shift Amid Energy Price Volatility

The Bank of England has maintained its key interest rate at 3.75%, but signaled that it's still prepared to hike if energy-price swings risk reigniting inflation.

According to the minutes, the Monetary Policy Committee voted 6-3 to keep Bank Rate steady, with three members preferring a move to 4%. The tone of the meeting was more hawkish, with officials saying they don't want to wait for 'second-round effects' like rising wages and broader price increases before acting.

The BoE also lifted its inflation outlook, expecting it to climb above 4% in early 2027, up from a prior forecast of a 3.2% peak in late 2026. The bank pointed to Middle East-linked energy volatility as a key risk and warned that persistent moves could require tighter policy to return inflation to its 2% target.

The BoE adjusted quantitative tightening (QT), pausing active gilt sales, holding gilts maturing before 2035 to maturity, and keeping its goal of taking its monetary-policy gilt stock to zero by 2034. This affects how much UK government debt markets must absorb, which can shape longer-term borrowing costs.