U.S. Federal Reserve Chairman Kevin Warsh and Bank of England Governor Andrew Bailey at the Jackson Hole Economic Symposium in Moran, Wyoming, on August 28, 2026.David A. Grogan | CNBC The Bank of England is widely expected to leave interest rates unchanged on Thursday, even though inflation has risen well above its 2% target. Markets are pricing in a more than 80% chance that the central bank will hold interest rates steady on Thursday, according to LSEG data, but an increase of at least 25 basis points is widely anticipated at its next meeting in November. A hold would mark a divergence from other major central banks. The US Federal Reserve announced a quarter-point hike on Wednesday, its first hike since 2023. Last week, the European Central Bank announced its second rate hike this year, after raising rates in June for the first time in three years. The Bank of Japan is expected to raise its key interest rate at the end of its two-day meeting on Friday. The Bank of England has not changed its key interest rate this year. It last changed rates in December, with a 25 basis point cut. Data released on Wednesday showed the UK’s inflation rate rose to 3.1% in August, marking its first rise above 3% since March. The country’s Office for National Statistics (ONS) said the increase was largely due to rising motor fuel costs, which rose 23% year-on-year. As a net energy importer, the UK is particularly vulnerable to external energy shocks and is still grappling with a cost of living crisis caused by post-Covid inflation and the impact of the Russia-Ukraine war on natural gas supplies. Concerns about global inflation, political instability and apprehension over UK fiscal policy have put pressure on British government bonds, known as gilts, this year. Britain has the highest borrowing costs in the G7, with yields on its long-term 20- and 30-year government bonds approaching the 6% mark. Earlier this week, British newspaper The Telegraph reported that the Bank of England would announce plans to stop selling 20- and 30-year bonds alongside its decision on interest rates. Although rising inflation is “unlikely to convince the Bank of England to raise interest rates just yet,” it could raise fresh concerns about the inflation outlook among policymakers, said Scott Gardner, investment strategist at JP Morgan Personal Investing. “The conflict between the United States and Iran began more than six months ago, but higher energy costs are still trickling down to business input prices and household spending,” he said in a note Wednesday. Shreyas Gopal, currency strategist at Deutsche Bank, said in a note on Wednesday that the absence of any materially aggressive surprises in both the UK labor market and this week’s inflation data had been “sufficient to price [hikes at] this next meeting will go back again.”
