Bank of England holds interest rate at 3.75% as inflation climbs past 3%

The Bank of England opted to keep its benchmark interest rate unchanged at 3.75% on September 17, marking the sixth consecutive hold since the central bank last cut rates in December 2025. The decision lands at an uncomfortable moment: UK inflation just hit 3.1% in August, blowing well past the government’s 2% target and crossing the 3% threshold for the first time since March.

What makes this one interesting isn’t the hold itself. It’s the fracture inside the Monetary Policy Committee. The vote split 6-3, with three members pushing for a 25 basis point hike to 4.0%.

Rising fuel costs are doing the heavy lifting

The primary culprit behind the inflation surge is rising motor fuel prices. The BoE points to ongoing geopolitical tensions in the Middle East and persistent supply chain disruptions as the forces driving energy costs higher.

The committee’s own projections paint a picture that doesn’t exactly scream “transitory.” The BoE expects inflation to reach 3.75% by the end of 2026 and potentially surpass 4% in early 2027, driven primarily by continued volatility in global energy markets.

The MPC did note that, so far, there are limited signs of second-round effects. That’s central bank speak for: workers aren’t yet demanding big enough pay raises, and businesses aren’t yet hiking prices broadly enough, to create a self-reinforcing inflation spiral.

Quantitative tightening hits the finish line

Alongside the rate decision, the MPC unanimously voted to complete its quantitative tightening program by reducing its stock of UK government bond purchases, financed by central bank reserves, to zero.

The next MPC meeting is scheduled for November 5, giving policymakers roughly seven weeks of additional data before they have to make this call again.