Bank of England set to defy Fed’s rate-hike lead, despite rising inflation

CNBC says the Bank of England is widely expected to keep Bank Rate unchanged at 3.75% on Thursday, even though UK inflation has moved further away from the 2% target. The backdrop is an August CPI print at 3.1%, with ONS attributing much of the rise to motor fuel costs, which were up 23% year-on-year.

The report frames the UK’s situation as especially sensitive to external energy shocks because the UK is a net energy importer. It also links the broader cost-of-living context to earlier inflation pressures following post-Covid dynamics and the Russia-Ukraine impact on natural gas supplies. In parallel, it notes market pressure on gilts, pointing to long-dated 20- and 30-year yields approaching the 6% area and describing the UK as having the highest borrowing costs in the G7.

CNBC further notes expectations about how quickly the BoE could change course: markets reportedly assign an 80%+ probability of a hold on Thursday, while a hike of at least 25 basis points is widely anticipated for the next meeting in November. The article also ties the rate outlook to the risk that higher energy costs could keep filtering into business inputs and household spending.

For FX traders, the key watchpoints are the BoE’s reaction function and the tone on whether fuel-led inflation is seen as sufficiently transitory, particularly after the Fed’s recent move to raise rates.