Bank of England Holds Rate at 3.75%, Deputy Governor Ramsden Warns Hike Is Coming If Inflation Keeps Climbing

The Bank of England held its benchmark interest rate at 3.75% for a sixth straight meeting on September 17, 2026. Six of nine Monetary Policy Committee members voted to hold. Three wanted to hike immediately to 4%, according to the Associated Press, via the Washington Post.

Deputy Governor Dave Ramsden, one of the six who voted to hold, spent Monday, September 28 telling London's Money Macro and Finance Society why a hike may still be coming. "Whilst the policy stance continues to provide restrictiveness, were upside pressures on the inflation outlook to continue to build, there could be a case for increasing Bank Rate," he said, according to Reuters (via Global Banking and Finance Review).

The numbers back him up. UK inflation hit 3.1% in the year to August 2026, up from 2.9% in July, according to the Epoch Times. That's well above the BoE's 2% target. The Bank now expects inflation to climb to around 3.75% by the end of 2026 and slightly above 4% in the first quarter of 2027, per the same reporting.

The war behind the numbers

The driver isn't domestic overheating. It's the Middle East war and its effect on energy markets. Brent crude settled at $84 a barrel on July 28 and climbed above $100 by mid-September, the Epoch Times reported. UK natural gas futures closed at 136 pence per therm the same July date.

Ramsden put a number on what that's cost UK households in monetary policy terms. Absent the US assault in the Middle East and the resulting energy disruption, he said, "there would have been at least two cuts by now" and Bank Rate would likely sit at least half a point below where it is today, according to City A.M.

Chancellor Rachel Reeves pushed back on any suggestion the inflation spike reflects domestic mismanagement. "The war in the Middle East is impacting on inflation worldwide. Not just here at home," she posted on X on September 16, per the Epoch Times. She pointed to government moves cutting taxes on electricity bills, capping bus fares, and reducing business rates for pubs and music venues as measures cushioning households.

The bond sale plan markets liked

Alongside the rate decision, the MPC also overhauled its quantitative tightening program. The BoE set out a plan to sell down most of its £488 billion gilt portfolio by 2034, at a pace of roughly £20 billion a year, while keeping £120 billion of long-dated gilts to back banknote issuance, according to Reuters.

Ramsden said Monday the market reaction has been better than expected. Gilt prices rallied and yields fell after the announcement, "suggesting the market was expecting more QT, either in total or at a higher pace," he said, adding that removing uncertainty about the QT path "reduced risk premia."

The case for holding, and the case against it

The MPC's holdout majority argues that higher energy costs have so far had limited pass-through to wages and services prices, meaning a hike now would slow growth without doing much to counter a price shock the Bank Rate can't actually fix, since it can't change the price of imported oil. Ramsden made that case directly: tighter financial conditions since the war began have already "helped to limit the potential for some of the direct effects from the energy shock to propagate through to second round effects."

The three dissenting MPC members see it differently. They backed an immediate quarter-point hike to 4%, judging that with inflation already 1.1 points above target and climbing, waiting risks letting energy-driven inflation harden into the kind of wage-price spiral that's much harder to unwind later. That's a legitimate read of the same data. The debate isn't about whether inflation is a problem. It's about timing.

Food inflation offers one data point cutting against urgency. The BoE's regional agents now expect annual food inflation of around 4% by year-end, down from earlier estimates of 6-7%, per the Epoch Times. But the Bank warned drought conditions in Europe, El Niño, and continued energy pressure could push food prices back up in 2027.

Where markets stand now

Deputy Governor Clare Lombardelli said last week that the case for a hike "will grow if energy prices remain high," according to Morningstar (via Dow Jones). Investors have taken the hint. Markets are pricing a move to 4% in November, and analysts at Brown Brothers Harriman told FXStreet that roughly 100 basis points of hikes are priced in over the next 12 months, putting Bank Rate near 4.75% by late 2027.

The pound gained 0.13% against the dollar to near 1.3256 on Monday on the hawkish commentary, FXStreet reported. A November hike would put the BoE in line with the Federal Reserve, European Central Bank, and Bank of Japan, all of which have raised rates since the Middle East conflict began, according to Reuters. The next MPC decision, and the inflation data feeding into it, lands before that November meeting.