The Bank of England held its policy rate at 3.75%, marking its sixth consecutive hold since December last year.
The BOE's Monetary Policy Committee left the rate unchanged on the 17th. Six of the nine committee members voted to keep the rate at 3.75%, while three called for a 0.25 percentage point increase to 4.00%. The decision came a day after the U.S. Federal Reserve raised its benchmark rate for the first time in more than three years, since 2023.
The hold is seen as reflecting both the price shock from the war involving Iran and sluggish domestic growth. BOE Governor Andrew Bailey said the impact of rising global energy costs on British prices and wage-setting had been limited so far, but added that the longer the volatility persists, the greater the effect on inflation and the greater the likelihood the bank will need to raise rates to return inflation to its 2% target.
Many analysts expect the BOE to begin raising rates in earnest from November. Renewed escalation of the war in the Middle East has driven up British natural gas and Brent crude futures prices, and consumer price inflation for August, released the previous day, came in at 3.1%, well above the BOE's 2% target. The European Central Bank's two rate increases since June are another factor lifting expectations for a hike.
According to the Financial Times, markets expect the BOE to raise its policy rate by about 1 percentage point over the next 12 months. Swap markets are pricing in roughly a 90% chance of a 0.25 percentage point increase at the November meeting.
The BOE also decided to slow the pace of quantitative tightening, under which it sells back the government bonds it bought in large volumes to support the economy during the COVID-19 pandemic, draining liquidity from the market. Under the change, gilt sales that had been conducted on an annual basis will be phased in over the next eight years, and sales will be suspended until April next year. The BOE estimates that the increased supply of gilts released into the market through quantitative tightening has pushed British government bond yields up by about 0.25 percentage point.
