Bank of England and Fed rate decisions: a hold and a rise, with more hiking signalled

The Bank of England is likely to hike in November and the Federal Reserve is likely to raise rates again because higher energy prices are worsening inflation risks while economic activity remains resilient.

• The BoE held Bank Rate at 3.75% by a 6-3 vote, but expects inflation to reach around 3.75% in Q4 and rise above 4% at the start of 2027 based on energy prices on 14 September.
• The BoE still sees little evidence of indirect or second-round effects from energy prices, but judges that the risk of material second-round effects has increased since July; stronger growth and stabilising labour-market slack also reduce the case for waiting.
• The BoE plans to slow quantitative tightening to £46bn of annual balance-sheet reduction, implying about £20bn of active gilt sales per year alongside maturities.
• The Fed raised its target range by 25 basis points to 3.75%-4.00%, while its median projection implies another hike this year and a 4.1% policy rate at year-end.
• The Fed raised its 2026 growth forecast to 2.3%, lowered its unemployment forecast to 4.1%, and expects inflation to remain above target until 2029; market pricing ahead of the meeting implied three to four hikes by mid-2027.

Takeaway: Both central banks are signalling that persistent energy-driven inflation could require further tightening, although the BoE may deliver only a limited rise because of its soft labour market and both outlooks remain dependent on oil prices and geopolitical developments.