The Bank of England kept the bank rate at 3.75% on Thursday for a fifth consecutive meeting, a decision that was widely expected but came with a 6-3 vote split that underscores growing discomfort on the Monetary Policy Committee. Three members, Greene, Pill and Mann, argued for a 25 basis-point increase to 4%, the largest dissenting bloc since the tightening cycle began. The pound edged up 0.17% to 1.3390 against the dollar in the immediate aftermath, making sterling the strongest major currency on the day.
The vote split signals discomfort
The majority’s rationale rests on the belief that tighter financial conditions already in the pipeline buy time to assess inflation risks. The minority, by contrast, framed their preference as risk management: they fear material second-round effects are taking hold and that waiting for conclusive evidence of persistence could force a sharper response later. Governor Bailey’s statement made clear the committee is prepared to act before those risks “materialise conclusively,” a formulation that keeps a hike very much on the table for the coming quarters.
Inflation forecast revised but risks remain
The Monetary Policy Report revised the near-term inflation path lower. CPI is now seen reaching 3.2% in the fourth quarter of 2026, down from the June projection of a little above 3.25%. Yet the central forecast still shows inflation above the 2% target through the first quarter of 2027 at 3.2%, before dipping to 1.7% in early 2028 and settling at 1.9% in early 2029. That undershoot in 2028 is new, April’s report offered no central forecast that far out, and it rests on market-implied rate expectations that already price one quarter-point hike in the fourth quarter of this year and another in 2027.
Growth outlook barely positive
Underlying GDP growth in the second quarter was estimated at just 0.1%, revised down from 0.2% in June, and the BoE expects it to stall around zero in the third quarter. Headline growth for Q2 comes in at 0.3%. The annual projections are modest: 1.1% for both 2026 and 2027, rising to 1.7% in 2028. Unemployment is forecast to drift up to 5.3% next year from 5.0% this year. Private-sector regular wage growth is seen holding near 3% through the forecast horizon, consistent with the 2% target only if productivity picks up.
What the market takes from it
The gilt market’s reaction was muted, but the BoE’s own estimate of quantitative tightening’s impact on 10-year yields has widened to 20-30 basis points from 15-20 a year ago, a quiet acknowledgment that the balance-sheet runoff is tightening financial conditions more than previously thought. The committee also flagged three distinct upside risks: the Iran conflict, El Niño, and sustained demand for AI components. With the next meeting in September and the November report likely to carry fresh forecasts, the 6-3 split suggests the debate has shifted from whether to hike to how long the majority can hold the line.