U.S. Federal Reserve Chairman Kevin Warsh and Bank of England Governor Andrew Bailey at the Jackson Hole Economic Symposium in Moran, Wyoming, August 28, 2026.
David A. Grogan | CNBC
The Bank of England is widely expected to keep interest rates unchanged on Thursday, even though inflation remains well above its 2% target.
Markets are pricing in a more than 80% chance that the central bank will leave rates unchanged on Thursday, according to LSEG data, although a rate hike of at least 25 basis points is widely expected at its next meeting in November.
Leaving it unchanged would indicate a departure from other major central banks. The US Federal Reserve (Fed) announced on Wednesday that it would raise interest rates by a quarter of a percentage point, the first rate increase since 2023. Last week, the European Central Bank (ECB) announced its second interest rate hike this year, following the first rate increase in three years in June. The Bank of Japan is expected to raise its key interest rate at the end of a two-day meeting on Friday.
The Bank of England has left its key interest rates unchanged this year. The last interest rate change was in December, when it was lowered by 25 basis points (bp).
UK inflation rose to 3.1% in August, the first time it exceeded 3% since March, according to data published on Wednesday.
The country’s Office for National Statistics (ONS) said the main cause of the hike was a rise in motor fuel costs, which rose 23% year-on-year.
As a net energy importer, the UK is particularly vulnerable to external energy shocks and is still grappling with a cost-of-living crisis brought on by post-COVID-19 inflation and the impact of the Russia-Ukraine war on natural gas supplies.
Global inflation fears, political instability and uncertainty about UK fiscal policy have put pressure on British bonds (known as gilts) this year. Britain has the highest borrowing costs in the G7, with yields on its 20-year and 30-year bonds approaching the 6% range.
Earlier this week, British newspaper The Telegraph reported that the Bank of England would announce plans to suspend sales of 20-year and 30-year bonds at the same time as it decides on interest rates.
Scott Gardner, investment strategist at JPMorgan Personal Investing, said rising inflation “is still unlikely to convince the Bank of England to raise interest rates,” but it could raise new concerns among policymakers about the outlook for inflation.
“Although the U.S.-Iran conflict began more than six months ago, rising energy costs are still spilling over into business input prices and household spending,” he said in a note Wednesday.
Shreyas Gopal, a foreign exchange strategist at Deutsche Bank, said in a note on Wednesday that the lack of any significant hawkish surprises in either the UK labor market or inflation data this week was “enough to price in a rate hike at this meeting.”
