Bank of England Seen Holding 3.75% Through 2026

The shift matters because it shows how quickly an external energy shock can override the earlier disinflation narrative. Brent crude is again nearing $100 a barrel amid the continued US-Israel-Iran conflict, yet the bigger issue for the Bank is whether higher fuel and utility costs filter into wages and broader prices. Britain’s latest inflation reading of 2.9% is still above the 2% target, and policymakers appear unwilling to cut until they are convinced the energy hit will not produce the second-round effects that can entrench price pressure.

For investors, the implication is a longer period of restrictive monetary policy, higher-for-longer gilt yields and a slower reset for mortgage pricing than many households and borrowers had hoped for. The Reuters survey said economists see global government-bond yields having tightened financial conditions already, which gives the Bank more room to pause but also keeps pressure on rate-sensitive parts of the UK economy. That helps explain why the FTSE has remained resilient even as rate expectations stay elevated, with the index near record highs, while sterling trades with a firmer tone against the dollar.

The divide inside the Monetary Policy Committee also points to a persistent hawkish risk. Three of nine members voted for a hike in July, up from two at the prior meeting, showing that concern about inflation has not faded. Still, the majority view is that the Bank will prefer patience over action until it sees whether energy costs spill into pay deals and services inflation.

The timing of the next move is now the central question. Economists in the poll pushed the first 25-basis-point cut back to the third quarter of 2027, later than in August’s survey, and see inflation averaging 3.1% in 2026 before easing to 2.5% in 2027 and 1.9% in 2028. Growth is still expected to remain subdued at just over 1% a year, which means the Bank is balancing a weak economy against a renewed inflation risk.

For markets, the narrative is no longer about how fast the Bank can normalize, but how long it must stay restrictive to prove the inflation surge is temporary. If energy prices keep rising and second-round effects emerge, the hurdle for cuts gets even higher. If they do not, the Bank may still be able to ease eventually — but not until 2027, and likely only slowly.