FX.co ★ Bank of England Set to Hold Rates

The Bank of England is expected to leave Bank Rate unchanged at 3.75%, though policymakers are likely to maintain a hawkish stance given rising inflation risks linked to higher energy prices. August CPI increased to 3.1% year-on-year, and producer price inflation also picked up, underlining persistent pipeline cost pressures. That said, softer labour-market conditions, slowing wage growth and limited signs of second-round inflation effects argue in favour of holding rates steady. Markets anticipate that the July 6–3 vote split will be repeated, with Pill, Greene and Mann continuing to back a 25-basis-point increase. The MPC is also expected to slow the pace of quantitative tightening from £70 billion to about £50 billion over the coming year, largely reflecting a reduced volume of maturing gilts. Active gilt sales are likely to remain close to £20 billion, potentially excluding long-dated bonds. Overall, the Bank is set to wait for clearer evidence that higher energy costs are feeding through into underlying domestic inflation before tightening policy further.