Economists Predict Bank of England Will Hold Rates at 3.75%

The Bank of England is expected to maintain its benchmark interest rate at 3.75% during its September 17 meeting. Economists argue that recent energy price volatility stemming from the U.S.-Israeli war on Iran has yet to trigger systemic inflation.

All 65 economists surveyed by Reuters between September 4 and 8, 2026, reached a consensus that the Monetary Policy Committee (MPC) will leave rates unchanged. This outlook suggests a period of policy patience, which differs from financial market participants who are currently pricing in three rate hikes through mid-2027, with the first potential increase anticipated in November.

"For the Bank, there are no flashing warning signs," said Gabriella Willis, UK economist at Santander CIB.

The Role of Second-Round Effects

The divergence between market pricing and the consensus forecast centers on the central bank's threshold for action. The MPC has signaled that it would only consider tightening monetary policy if it observes clear evidence of second-round effects. This is a mechanism where temporary price shocks, such as a spike in energy costs, become embedded in the broader economy through wage growth or corporate pricing strategies.

"They said they would consider a move if evidence of 'second-round effects' started to appear, and, so far, that's not the case," said Elizabeth Martins, UK economist at HSBC.

When energy prices rise, the initial impact is a first-round effect, which directly increases consumer costs. Second-round effects occur when workers demand higher wages to compensate for those higher costs, or when businesses raise prices to protect margins. This creates a self-sustaining inflationary spiral that is harder for central banks to control than the original supply-side shock.

Diverging Outlooks for 2027

While the market anticipates a hawkish path starting in late 2026, the economists polled suggest a prolonged period of stability. The median forecast among the group predicts that rates will remain at 3.75% for the duration of the current cycle. The first reduction in borrowing costs is not expected until the third quarter of 2027.

This gap between market expectations and economic forecasts highlights the uncertainty surrounding how the regional conflict in the Middle East might impact global energy supply chains. For the Bank of England, the current data suggests that the inflationary pressure remains localized to energy markets rather than manifesting as the broad-based wage-price growth that would necessitate a policy response.