Sponsored

The Bank of England Held at 3.75%, but Its Dissenters Now Want to Hike, Not Cut

For the first time in this easing cycle, the argument inside the Monetary Policy Committee is no longer about how quickly to cut. On Thursday it was about whether to raise.

The Bank of England left Bank Rate unchanged at 3.75%, the fifth consecutive hold of 2026. That much the market had expected. The surprise sat in the voting record. Three of the nine committee members, Megan Greene, Huw Pill and Catherine Mann, voted to lift Bank Rate by a quarter point to 4%. A year that began with investors pricing a steady march of cuts has produced a midsummer meeting whose only dissent was hawkish.

The 6-3 split is the sharpest hawkish minority the committee has shown in this cycle, and the direction of travel is what matters. At the June meeting the vote was 7-2, with two members already pressing for a rise. One more has now joined them. Nobody on the committee is voting to cut. In the space of two meetings the internal risk debate has flipped from “how soon do we ease” to “how long can we hold”.

The reason is written across the August Monetary Policy Report, and it is largely a story about energy. The renewed fighting involving Iran has kept the Strait of Hormuz closed for roughly five months, and the report’s central judgement is that the risks around energy prices are skewed to the upside. On that point the committee was unanimous: all nine members agreed the balance of energy risk points higher, even as they disagreed on what to do about it. A bigger-than-expected fall in inflation last month is what gave the majority the room to wait rather than move, but the report makes clear that the comfort is conditional.

That leaves the Bank in an awkward communications position, and Governor Andrew Bailey spent much of the one o’clock press conference trying to manage it. Asked whether the widening hawkish bloc meant a rise was coming, he was blunt. “Please do not leave this room thinking that the Bank of England is edging towards a hike,” he said, “because frankly, there’s nothing in what I said, and I think any of us have said, along those lines. We took a decision today to leave Bank Rate unchanged, and that is the relevant conclusion.” He paired that with the standard reassurance that the committee would “monitor the situation carefully and stand ready to adjust our stance as the evidence and our judgements on the outlook evolve”, and repeated his line that the Bank intends to “see the job through” on inflation.

The gap between the vote and the message is the real signal for anyone trying to read this meeting. A governor rarely feels the need to talk markets out of a rate rise unless he suspects they are already leaning that way. Three dissenters, a report that leans on upside energy risk, and a closed shipping lane are exactly the ingredients that push the swaps curve towards pricing a hike. Bailey’s pushback is an attempt to pin expectations to the actual decision rather than to the mood music around it.

For borrowers, the immediate news is neutral. Bank Rate stays where it has sat since the spring, so trackers and standard variable rates do not move this week. But the pricing of new fixed-rate mortgages is set off the forward curve, not off the current level, and that curve is where the hawkish tilt bites. If lenders read the 6-3 vote as evidence that the next move is as likely to be up as down, the modest downward drift in fixed pricing that borrowers had been banking on for the autumn may stall. The remortgaging cohort rolling off cheap pandemic-era deals will feel that first.

Gilts told a similar story in the minutes after the announcement. A hold that markets had fully expected still carried a hawkish surprise in its composition, and short-dated yields, the part of the curve most sensitive to the rate path, had the clearest reason to firm. The pound, which tends to like the prospect of higher rates, had the more straightforward reaction.

The harder question is what the committee does if the Strait stays shut. The Bank’s framework is built to look through a one-off jump in energy prices, on the theory that a spike fades out of the annual inflation comparison within a year. A blockage entering its sixth month is not a spike; it is closer to a persistent supply shock, and the longer it runs, the greater the danger that it seeps into wage settlements and services inflation, the domestically generated price pressure the Bank actually controls. That is the fear animating Greene, Pill and Mann, and it is why their dissent is more than a technicality. They are arguing that waiting has a cost, and that the cost rises with every month the energy risk sits unresolved.

For now the majority has judged that the recent fall in inflation buys enough time to watch rather than act. The next meeting, on 17 September, will show whether that judgement holds. Two things will decide it: the path of the inflation data over the next seven weeks, and whether the Strait of Hormuz reopens. If energy prices ease, the hawkish bloc loses its argument and the debate swings back towards cuts. If the lane stays closed and inflation firms, the question Bailey tried to wave away on Thursday, whether the Bank is edging towards a hike, answers itself.

David Whitmore covers UK finance and macro for Clarqo.

Finance & Markets Correspondent
Covers: Finance, capital markets, technology investing

David Whitmore covers the intersection of capital and code — the funding rounds, market structures and policy moves that shape how money flows through the technology economy.