The Bank of England holds at 3.75%, but a rate rise is edging closer

A day after America's central bank put rates up for the first time in three years, the Bank of England kept UK rates on hold. But three of its nine rate-setters wanted a rise, and the Bank warned that the longer energy prices stay high, the more likely it is that rates will have to go up. Here's what was decided, why, and what it could mean for your mortgage.

Updated on Thursday 17 September with the Bank of England's decision. We first published this article on 16 September, ahead of the announcement.

US Federal Reserve

3.75–4.00%

Raised by 0.25% on 16 September, a unanimous 12–0 vote

Bank of England

3.75%

Held on 17 September by a 6–3 vote, with three members wanting a rise to 4%. Next decision 5 November

What the Bank of England decided

On Thursday the Bank's Monetary Policy Committee voted by six to three to keep Bank Rate at 3.75%, where it has been since December. Huw Pill, Megan Greene and Catherine Mann voted for a quarter-point rise to 4%, just as they did in July. Governor Andrew Bailey, Sarah Breeden, Swati Dhingra, Clare Lombardelli, Dave Ramsden and Alan Taylor voted to hold.

The decision itself was what most economists expected. The message that came with it was firmer. The Bank said the risks to inflation are now tilted upwards, more so than in July, and that it stands ready to act. Bailey said higher global energy costs have so far had only a limited effect on UK prices and wages, but that the longer the volatility lasts, the more likely it is the Bank will need to raise rates to get inflation back to its 2% target.

A few other points stood out:

• Inflation is expected to rise further. UK inflation reached 3.1% in August, and the Bank expects it to climb to around 4% by early next year as higher energy costs feed through.
• No sign yet of a wider spiral. The Bank found little evidence so far of "second-round effects", where businesses and workers push up prices and pay in response to higher costs. That's the main reason the majority felt a rise wasn't needed yet.
• The economy is holding up. Activity has been slightly stronger than expected, although a soft jobs market and higher borrowing costs should help bring inflation down over time.
• Markets now expect rises. After the announcement, traders were pricing in a quarter-point rise as early as November, and further increases next year that could take Bank Rate to 4.75%.
• A new plan for the Bank's government bonds. The Bank set out how it will finish selling the gilts it bought through quantitative easing, including a proposal to sell some directly back to the Treasury and a halt to sales of long-dated gilts. UK government borrowing costs dipped slightly after the news, with the 10-year gilt yield down about 0.06 percentage points.

What happened in the US

On Wednesday the Federal Reserve lifted its benchmark rate by a quarter point to a range of 3.75% to 4%. It's the first rise since July 2023, and it undoes one of the three cuts the Fed made last year.

The politics made it headline news. Fed Chair Kevin Warsh was appointed by President Trump, who has repeatedly called for lower rates, yet not a single member of the committee voted against the rise. The Fed's own projections also suggest most officials expect another increase before the end of the year.

The reason is inflation. The conflict in the Middle East has pushed oil above $100 a barrel and sent fuel prices sharply higher. US inflation, which was 2.4% at the start of 2026, has been running well above the Fed's 2% target ever since.

Same shock, two economies

The UK has been hit by the same energy shock, but the pattern has been different. US inflation spiked earlier and harder, peaking at 4.2% in May. UK inflation dipped through the spring before turning up again over the summer.

Annual inflation, UK vs US, 2026

Consumer Prices Index, % change on a year earlier

UK US 2% target (both)

Part of the reason for the gap is timing. American drivers feel oil prices at the pump almost immediately, while much of the UK's energy cost reaches households through the Ofgem price cap, which only changes every quarter. July's 13% cap rise pushed UK inflation back up to 2.9%, and rising petrol and diesel prices took it to 3.1% in August. The cap is due to rise again by 4% in October.

There's a more reassuring detail underneath the headlines. Core inflation, which strips out volatile food and energy prices, is much calmer in both countries: 2.4% in the US and 2.6% in the UK in August. That suggests the problem so far is mainly energy, rather than prices rising across the board.

The Bank of England is edging towards a rise

UK Bank Rate has sat at 3.75% since December, so on the surface nothing has changed. But the way the nine members of the Monetary Policy Committee vote tells a different story. In February, four of them wanted a cut. By July, three wanted a rise. The committee moved roughly one vote further in the hawkish direction at each meeting from March to July, and in September the split held at 6–3.

How the Bank of England's rate-setters have voted in 2026

Voted to cut Voted to hold Voted to raise

February 5–4 hold

March 9–0 hold

April 8–1 hold

June 7–2 hold

July 6–3 hold

September 6–3 hold

November 5 November

The same three members, Chief Economist Huw Pill, Megan Greene and Catherine Mann, have now voted for a rise at two meetings in a row. Pill argued that a rise now would send a clear signal of the Bank's commitment to bringing inflation down. On the other side, Alan Taylor and Swati Dhingra put particular weight on signs that the economy has enough slack to hold inflation back, and said there was time to wait for more evidence.

Before the Middle East conflict began, markets expected two UK rate cuts this year. After Thursday's decision, they're expecting rises instead. With August's inflation rise and the Bank's warning about energy prices, November's meeting, which comes with a full set of new forecasts, now looks like the one to watch.

How the decision compared with what we expected

Before the announcement, we set out the three most likely outcomes. The Bank delivered the first of them, a hold with an unchanged 6–3 vote, though with stronger warnings about future rises than in July.

Does a US rate rise affect UK rates?

Not directly. The Bank of England sets rates for the UK economy, and it won't raise Bank Rate just because the Fed has. But what happens in the US does travel across the Atlantic in a few important ways.

1. A shared causeThe same oil and gas prices are pushing up inflation in both countries, so both central banks are weighing similar risks.
2. Global borrowing costsUS government bond yields influence bond markets worldwide, including UK gilts.
3. The poundHigher US rates can strengthen the dollar. A weaker pound makes imports like fuel more expensive, adding to UK inflation.
4. Swap ratesLenders price fixed-rate mortgages largely from swap rates, which move on what markets expect rates to do next, often before Bank Rate itself changes.

That last point matters most for borrowers. Fixed mortgage rates don't wait for the Bank of England to act. If markets start to believe UK rates will rise, fixed deals can become more expensive weeks or months before any official decision.

What we don't know

None of this is certain. The Bank itself says the outlook could change materially depending on events in the Middle East. It has said it's most concerned about how long energy prices stay high, and energy prices have been extremely volatile throughout this conflict. If they fall back, the case for a UK rise weakens quickly. The Bank confirmed on Thursday that there's still little sign of higher energy costs spreading into wider prices and pay, which is what would really worry rate-setters.

History offers a note of caution too. It's unusual for the Fed to raise rates only once, but it has happened: in 1997, a single rise was followed by a long pause after events elsewhere changed the picture.

So the honest answer is that the direction of risk has shifted. A year ago the conversation was about how fast rates would fall. Today it's about whether they rise, and by how much.

What this could mean for you

If your fixed rate ends in the next six months, it may be worth looking at your options now, before November's decision and before lenders price in any further rises. Many lenders let you secure a new deal several months before your current one ends, and in many cases you can still switch if rates improve before it starts.

If you're buying, a mortgage agreement in principle can help you understand your budget while rates are moving.

If you're on a tracker or variable rate, your payments would rise if Bank Rate goes up. It's worth checking how a 0.25% or 0.5% increase would affect your monthly budget.

Quick Mortgages offers whole-of-market advice with no broker fees. We can help you compare your options before rates move.

Speak to an adviser

---

Disclaimer:

This article is for general guidance purposes only and does not constitute legal, financial, or professional advice. Mortgage products and their terms can vary, and it is important to seek advice from a qualified, regulated professional who can assess your individual circumstances. Please ensure you consider your unique needs before making any financial decisions.

While every effort is made to ensure that the information provided on this blog is accurate and up-to-date, we do not guarantee its completeness or accuracy. The mortgage market can change rapidly, and the information on this blog may become outdated. We recommend verifying any information before acting on it and seeking tailored advice.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.