Bank of England
Updated
Summary
The Bank of England is the UK's central bank. Its nine-member Monetary Policy Committee (MPC) sets Bank Rate, the main UK interest rate, to meet a 2% inflation target set by the Chancellor. The target is the 12-month rise in the Consumer Prices Index (CPI), and it is symmetric. If CPI is more than 1 percentage point away from 2%, the Governor must write an open letter explaining why. Bank Rate is 3.75%. The MPC cut it in steps from August 2024, last to 3.75% on 2025-12-17, and has held since. Governor Andrew Bailey chairs the MPC. The Bank also runs a Financial Policy Committee (FPC) for financial stability, and it holds a large stock of UK government bonds (gilts) bought in past rounds of quantitative easing.
Key numbers
Bank Rate: 3.75% (held; unchanged since the cut of 2025-12-17) (as of 2026-09-17). Source: bankofengland.co.uk
September 2026 MPC vote: 6-3 to hold (Greene, Mann, Pill for 4%) (as of 2026-09-17). Source: bankofengland.co.uk
Inflation target: 2% CPI, 12-month, symmetric; open letter if more than 1 point away (as of 2025-11-26). Source: gov.uk
UK CPI / core CPI / services, September 2026: 3.5% / 2.8% / 3.7% (as of 2026-10-21). Source: ons.gov.uk
BoE CPI projection (energy prices of 14 September): around 3.75% in 2026 Q4; slightly above 4% in 2027 Q1 (forecast) (as of 2026-09-17). Source: bankofengland.co.uk
Direct energy share of August's 1.1-point overshoot: 0.7 points, mostly motor fuels (as of 2026-09-17). Source: bankofengland.co.uk
Gilt holdings / amount to unwind: £488bn held on 16 September; about £368bn to unwind (as of 2026-09-16). Source: bankofengland.co.uk
Planned active gilt sales: £20bn a year alongside maturities (about £46bn a year in all, to September 2034) (as of 2026-09-17). Source: bankofengland.co.uk
Private-sector regular pay growth (3 months to July): 2.9% (as of 2026-09-17). Source: bankofengland.co.uk
Unemployment rate (3 months to July): 4.9% (estimate) (as of 2026-09-17). Source: bankofengland.co.uk
UK countercyclical capital buffer: 2% (as of 2026-09-30). Source: bankofengland.co.uk
Cumulative Bank Rate cuts since August 2024 (to February 2026): 150 basis points (as of 2026-02-05). Source: bankofengland.co.uk
Timeline
2026-10-21 — ONS: CPI 3.5% in September, core 2.8%, motor fuels up 29.8%, two weeks before the next MPC decision. (Source: ons.gov.uk)
2026-09-30 — FPC record: buffer kept at 2%; gilt yields at levels not seen since 2008; risk outlook 'worsened since July'. (Source: bankofengland.co.uk)
2026-09-17 — Bank Rate held at 3.75% by 6-3 (Greene, Mann, Pill for 4%); multi-year gilt unwind plan with £20bn a year of sales. (Source: bankofengland.co.uk)
2026-09-17 — Governor's open letter: August CPI 3.1%, 0.7 points of the overshoot from direct energy effects. (Source: bankofengland.co.uk)
2026-07-30 — Held at 3.75% by 6-3 with a Monetary Policy Report; CPI 2.6% in June. (Source: bankofengland.co.uk)
2026-06-18 — Held at 3.75% by 7-2 (Greene, Pill for 4%); energy prices eased after peace plans. (Source: bankofengland.co.uk)
2026-05-29 — Bailey calls the conflict 'a big negative supply shock' and sets out leaning against second-round effects. (Source: bankofengland.co.uk)
2026-04-30 — Held by 8-1; April Report uses three energy scenarios; Scenario C peaks above 6%. (Source: bankofengland.co.uk)
2026-04-30 — Governor's open letter: March CPI 3.3%, driven mainly by motor fuels. (Source: bankofengland.co.uk)
2026-03-19 — Held at 3.75% by 9-0 after Hormuz disruption; Brent above $100, European gas up about 60%. (Source: bankofengland.co.uk)
2026-02-05 — Held at 3.75% by 5-4, four members for a cut; guidance that rates were likely to fall further. (Source: bankofengland.co.uk)
2025-12-18 — Bank Rate cut to 3.75% by 5-4. (Source: bankofengland.co.uk)
2025-11-26 — Chancellor's remit letter keeps the 2% CPI target unchanged. (Source: gov.uk)
2025-08-07 — Bank Rate cut from 4.25% to 4% by 5-4. (Source: bankofengland.co.uk.)
Key actors and links
United Kingdom (country:united-kingdom): The Bank is the UK's central bank; its MPC sets Bank Rate for the UK economy.
British pound (asset:gbp): The Bank issues sterling banknotes and its rate path affects the pound's interest-rate pull.
Headline inflation (theme:headline-inflation): The remit targets headline CPI at 2%; September's 3.5% is the number the MPC is judged against.
Energy-driven inflation pressure (theme:energy-driven-inflation): Direct energy effects, mostly motor fuels, made up 0.7 points of August's 1.1-point overshoot.
Oil and refined-product prices (indicator:oil-refined-product-prices): Petrol and diesel drove the March and September CPI rises cited in the Bank's open letters.
Refined products (commodity:diesel): Diesel at 192.5p a litre in September (ONS) is a cost for hauliers that can pass into goods prices.
Natural gas (commodity:natural-gas): Wholesale gas feeds the Ofgem price cap that the April Report expected to rise to close to £1,900.
Interest rates (indicator:interest-rates): Bank Rate (3.75%) is one of the policy rates that node tracks.
Inflation expectations (indicator:inflation-expectations): Bailey's stated concern is inflation becoming embedded through expectations and second-round effects.
2026 Iran war (event:2026-iran-war): The March 2026 summary ties the energy shock to conflict involving Iran, Israel and the US.
Strait of Hormuz (place:strait-of-hormuz): Shipping disruption through Hormuz is the Bank's stated cause of the 2026 energy-price rise.
Federal Reserve (actor:federal-reserve): The Fed raised rates on 2026-09-16 while the Bank held; the gap matters for sterling and gilts.
ECB (actor:ecb): Euro area peer facing the same energy shock; ONS compares UK CPI with France and Germany.
Bank of Japan (actor:bank-of-japan): Another G7 central bank responding to the 2026 energy shock, by raising its rate to around 1.25%.
Why it matters now
The Bank is facing an energy shock with inflation already above target. In March 2026 it said conflict involving Iran, Israel and the US had disrupted shipping through the Strait of Hormuz and pushed Brent above $100. CPI rose to 3.3% in March, triggering an open letter. It dipped to 2.6% in June, then climbed again: 3.1% in August, another open letter, and 3.5% in September, per the ONS on 2026-10-21. Core CPI rose from 2.6% to 2.8% and services from 3.4% to 3.7%.
The committee is split. Three members, Greene, Mann and Pill, voted to raise Bank Rate to 4% in July and again on 2026-09-17; six voted to hold. The Bank's September forecast has CPI at around 3.75% in 2026 Q4 and slightly above 4% in 2027 Q1. Bailey has said it is likely that policy may have to tighten if the conflict persists and second-round effects grow. The mechanism is the standard one for a supply shock. Higher fuel and gas prices raise CPI directly. Then they raise firms' costs, and later, if workers and firms expect higher prices, they raise wages and margins. Bank Rate cannot change oil prices; it can only lean against those later, second-round effects by cooling demand.
The Bank is also shrinking its gilt holdings. In September it set a plan to unwind about £368bn of £488bn, including £20bn a year of active sales, while its FPC warns that gilt yields are at levels not seen since 2008. The next decision, with a full forecast, is on 2026-11-05.
Risks and open questions
Bull case: The Bank's framework is working as designed. The MPC looked through the first, direct energy effects, wrote the open letters the remit requires, and kept Bank Rate at 3.75% while signalling it would lean against second-round effects. The evidence it cites still favours that patience: services inflation fell from 4.5% in March to 3.4% in August, private regular pay growth slowed to 2.9%, and unemployment rose to 4.9%. A looser labour market makes a wage-price spiral less likely. If oil and gas ease, the motor-fuel effect drops out of the annual rate after twelve months. Inference (AA): in that path the Bank can hold through the energy peak without needing the hikes three members voted for, and the gilt unwind proceeds at a slow, pre-announced pace.
Bear case: The overshoot is broadening. September CPI rose to 3.5% and core and services both rose too (2.8% and 3.7%), so the pressure is no longer only at the pump. The Bank's own September projection already had inflation slightly above 4% in early 2027, more than 2 points above target, and that was before the September CPI jump. Three of nine members already want 4%. Meanwhile the FPC says gilt yields are at levels not seen since 2008 and hedge-fund gilt leverage is elevated, while the Bank is starting active gilt sales of £20bn a year. Inference (AA): a hike into weak growth and high yields would raise mortgage and government borrowing costs together, and a delayed hike risks inflation expectations drifting up; both paths carry cost.
Falsifiers: - The hold-and-wait case fails if October CPI (due 2026-11-18) shows core and services rising again while pay growth stops slowing. - The hold-and-wait case fails if the November 5 vote moves to a majority for a hike, showing the MPC itself no longer reads the shock as temporary. - The broadening case fails if core CPI falls back toward 2.5% in the October or November releases while headline stays energy-driven. - The broadening case fails if the November Monetary Policy Report lowers its early-2027 CPI peak below the September projection of slightly above 4%. - The AA gilt-stress inference fails if gilt yields fall back and the FPC reports reduced hedge-fund leverage while sales proceed.
Value accrual gate: Not a crypto asset. Bank Rate moves value between groups: a higher rate helps savers and sterling cash holders, and costs mortgage borrowers refixing, the Treasury's debt interest bill and leveraged gilt holders. AA does not assume a direction for UK asset prices from any one decision.
What to watch
MPC decision, vote split and November Monetary Policy Report, the first full forecast since September CPI hit 3.5%. (2026-11-05); Source: bankofengland.co.uk
ONS October 2026 CPI, the first month to include October's higher diesel prices. (2026-11-18); Source: ons.gov.uk
December MPC decision (no Monetary Policy Report). (2026-12-17); Source: bankofengland.co.uk
Possible further open letter if CPI is still more than 1 point from target three months after the September letter, under the remit's rule. (around 2026-12 (conditional on CPI)); Source: gov.uk
Operational details of the gilt sale programme. (by 2027-04-30); Source: bankofengland.co.uk
AA expects the next Financial Stability Report to revisit gilt-market leverage; no date verified. (no scheduled date); speculative, no scheduled source
AA inference
Inference (AA): The Bank of England is the graph's clearest test of how a central bank treats an energy shock once core inflation starts rising too. Its remit is headline CPI, so motor fuel moves the number it is judged on, but its stated reaction function targets second-round effects. AA watches three signals: whether core and services keep rising in the October CPI (2026-11-18), whether the 6-3 split shifts at the 2026-11-05 meeting, and whether active gilt sales coincide with renewed gilt stress. The link to sterling and gilts runs through Bank Rate expectations; AA does not infer any asset-price direction from this.
Sources
At its meeting ending 2026-09-16 (published 2026-09-17) the Monetary Policy Committee held Bank Rate at 3.75% by 6-3. Andrew Bailey, Sarah Breeden, Swati Dhingra, Clare Lombardelli, Dave Ramsden and Alan Taylor voted to hold; Megan Greene, Catherine L Mann and Huw Pill voted to raise Bank Rate to 4%. Daniel Gallagher attended as the Treasury representative. (Source: bankofengland.co.uk, accessed 2026-10-21)
September 2026 projection: based on energy prices as of 14 September, CPI inflation is expected to rise to around 3.75% in 2026 Q4 and slightly above 4% in 2027 Q1. (Source: bankofengland.co.uk, accessed 2026-10-21)
September 2026 guidance: the Committee 'stands ready to act as necessary' to keep CPI on track for the 2% target in the medium term; protracted conflict in the Middle East is described as the dominant source of uncertainty; Governor Bailey said it is likely that policy may have to tighten if the conflict persists and the risk of second-round effects grows. (Source: bankofengland.co.uk, accessed 2026-10-21)
September 2026 gilt decision (unanimous): of £488bn of gilts held on 16 September, about £368bn will be unwound (about £222bn through maturities and £146bn through sales at £20bn a year), averaging about £46bn a year until September 2034, with £120bn retained to back banknotes; operational details by April 2027, and gilt sale auctions pause meanwhile. (Source: bankofengland.co.uk, accessed 2026-10-21)
September 2026 labour data cited by the MPC: private-sector regular pay growth 2.9% in the three months to July (3.3% at the start of the year), underlying wage growth estimated at around 3.5%, and unemployment an estimated 4.9%. (Source: bankofengland.co.uk, accessed 2026-10-21)
Governor's open letter to the Chancellor, 2026-09-17: CPI was 3.1% in August, more than 1 percentage point above target; direct energy effects from the Middle East conflict, mostly motor fuels, accounted for 0.7 points of the 1.1-point deviation; indirect energy effects via supply chains are expected to add around 0.6 points by 2027 Q1; services inflation fell from 4.5% in March to 3.4% in August. (Source: bankofengland.co.uk, accessed 2026-10-21)
HM Treasury published the Governor's letter and the Chancellor's reply on 2026-09-17, stating that the MPC remit requires such letters when inflation moves more than 1 percentage point from target in either direction. (Source: gov.uk, accessed 2026-10-21)
Governor's open letter, 2026-04-30: CPI was 3.3% in March (3.0% in February), driven mainly by petrol and diesel after disruption to shipping through the Strait of Hormuz; services inflation was 4.5% in March. (Source: bankofengland.co.uk, accessed 2026-10-21)
The Chancellor's remit letter of 2025-11-26 (Rachel Reeves) keeps the target at 2% for the 12-month increase in CPI, 'symmetric and applies at all times', with an open letter if inflation is more than 1 percentage point above or below target and a further letter if it is still more than 1 point away after three months; the remit is unchanged from 2024-11-14. (Source: gov.uk, accessed 2026-10-21)
The Bank hosts the Chancellor's letter of 2003-12-10, 'Remit for the Monetary Policy Committee and the new inflation target'; the annex setting out the switch from RPIX could not be opened in this pass. (Source: bankofengland.co.uk, accessed 2026-10-21)
July 2026 (published 2026-07-30, with a Monetary Policy Report): Bank Rate held at 3.75% by 6-3, with Greene, Mann and Pill voting for 4%; CPI was 2.6% in June; the MPC said 'Monetary policy cannot influence energy prices' and saw little evidence of second-round effects so far. (Source: bankofengland.co.uk, accessed 2026-10-21)
June 2026 (published 2026-06-18): Bank Rate held at 3.75% by 7-2, with Greene and Pill voting for 4%; CPI was 2.8% in May; energy prices had fallen after peace plans were announced but stayed above pre-conflict levels. (Source: bankofengland.co.uk, accessed 2026-10-21)
April 2026 Monetary Policy Report (2026-04-30): Bank Rate held by 8-1, one member voting for 4%; the Report used three scenarios instead of a central projection; Brent front-month futures averaged $100 a barrel in the 15 working days to 22 April and peaked at $119 on 31 March; in Scenario C inflation peaks above 6% at the start of 2027. (Source: bankofengland.co.uk, accessed 2026-10-21)
Governor's April 2026 letter projection: CPI to ease to about 3.1% on average in 2026 Q2, then rise to about 3.3% in Q3 and somewhat further in Q4; indirect energy effects add roughly a third of a point in Q3. (Source: bankofengland.co.uk, accessed 2026-10-21)
July 2026 summary: the MPC judged the risks to the inflation outlook tilted to the upside relative to the July Report's central projection. (Source: bankofengland.co.uk, accessed 2026-10-21)
April 2026 Report: the Ofgem household energy price cap was expected to rise to close to £1,900 in 2026 Q3 from £1,641 in Q2. (Source: bankofengland.co.uk, accessed 2026-10-21)
March 2026 (published 2026-03-19): Bank Rate held at 3.75% by 9-0; conflict involving Iran, Israel and the US had disrupted shipping through the Strait of Hormuz, Brent rose above $100 and European wholesale gas prices rose about 60%. (Source: bankofengland.co.uk, accessed 2026-10-21)
February 2026 (published 2026-02-05): Bank Rate held at 3.75% by 5-4, with Breeden, Dhingra, Ramsden and Taylor voting to cut to 3.5%; the MPC said Bank Rate was likely to be reduced further and that it was down 150 basis points since August 2024. (Source: bankofengland.co.uk, accessed 2026-10-21)
December 2025 (published 2025-12-18): Bank Rate cut by 0.25 points to 3.75% by 5-4; Greene, Lombardelli, Mann and Pill preferred 4%; CPI was 3.2% in November, down from 3.8% in September 2025. (Source: bankofengland.co.uk, accessed 2026-10-21)
August 2025 (published 2025-08-07): Bank Rate cut from 4.25% to 4% by 5-4. (Source: bankofengland.co.uk., accessed 2026-10-21)
Governor Bailey, Reykjavik, 2026-05-29: the Middle East conflict is 'a big negative supply shock to the world economy'; the MPC looks through direct energy effects, leans moderately against indirect effects, and would tolerate less above-target inflation if second-round effects appear. (Source: bankofengland.co.uk, accessed 2026-10-21)
Financial Policy Committee record (meeting 2026-09-25, published 2026-09-30): the UK countercyclical capital buffer stays at 2%; gilt and US Treasury yields reached levels not seen since 2008; hedge-fund gilt leverage remains elevated; 'The risk outlook has worsened since July'. (Source: bankofengland.co.uk, accessed 2026-10-21)
MPC dates: next announcements on 2026-11-05 (with a Monetary Policy Report) and 2026-12-17; the 2027 schedule starts 2027-02-04. (Source: bankofengland.co.uk, accessed 2026-10-21)
The Bank's Bank Rate page shows the current rate as 3.75% and the next decision on 2026-11-05. (Source: bankofengland.co.uk, accessed 2026-10-21)
ONS, 2026-10-21: UK CPI rose 3.5% in the 12 months to September 2026 (3.1% in August); core CPI 2.8% (2.6%); services 3.7% (3.4%); motor fuels up 29.8%; transport contributed 0.94 percentage points; petrol averaged 169.5p and diesel 192.5p a litre. The next release is 2026-11-18. (Source: ons.gov.uk, accessed 2026-10-21)
MPC members listed for September 2026: Andrew Bailey (Chair), Sarah Breeden, Swati Dhingra, Megan Greene, Clare Lombardelli, Catherine L Mann, Huw Pill, Dave Ramsden and Alan Taylor. (Source: bankofengland.co.uk, accessed 2026-10-21)