Bank of England Holds at 3.75%, Defying Fed — SkimNews
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- Bank of England held the Bank Rate at 3.75% in a 6-3 vote, with three MPC members — Catherine L Mann, Megan Greene, and Huw Pill — voting for a 25 basis point hike to 4%.
- The decision diverged from other major central banks: the U.S. Federal Reserve announced a quarter-point hike Wednesday, the European Central Bank announced its second hike this year last week, and the Bank of Japan is expected to hike Friday.
- U.K. inflation rose to 3.1% in August, its first reading above 3% since March, driven by motor fuel costs surging 23% year-on-year, according to the Office for National Statistics.
- Dissenting MPC members cited the Iran war as a source of upside inflation risk, with Mann noting the BoE's short-term forecast projects CPI above 4% in early 2027 and energy prices running well above the July baseline.
- UK gilt yields fell immediately after the announcement — the 10-year dropped 4 basis points to 5.2473% and the 30-year shed roughly 7 basis points to 5.7932%, after long-dated yields had been approaching 6%, the highest borrowing costs in the G7.
- Markets had been pricing in a 76% chance the bank would hold, per LSEG data, but a hike of at least 25 basis points at the November meeting is widely anticipated.
Why it matters: The BoE is the outlier among major central banks, and its three dissenters warned that the Iran war's energy-price impact and the UK's vulnerability as a net energy importer could force a hike soon — leaving the MPC split as November approaches and gilt markets, already at G7-high borrowing costs, price in further moves.
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