17 September 2026: The Bank of England may be preparing for a rate hike

Inflation rose to a five-month high last month as the aftershocks from the Iran war continued to push up fuel prices, official figures show, an increase that will pressure the Bank of England to hike interest rates again if not today, then over the coming months.

The Office for National Statistics said rising prices at the pump and airfares were largely behind the increase in the U.K.’s consumer prices index to 3.1% in August, up from 2.9% the month before. The increase moved inflation further from the Bank of England’s 2% target.

However, the MPC is widely expected to keep the bank’s main interest rate at 3.75% when it concludes its meeting later this morning, as a majority of the nine-member Monetary Policy Committee appear to want to see whether higher prices are feeding into higher wages that could further stoke inflationary pressures. A soft labour market is currently keeping wage demands in check.

Among the three dissenters at the last rate-setting meeting, Huw Pill, the Bank’s Chief Economist, was the most vehement, calling for rates to be increased to stave off the threat of an inflationary spiral. It remains to be seen whether other members of the MPC will join Pill, Catherine Mann and Megan Greene in voting for a rate hike today.

The boss of the Trades Union Congress, who is calling for higher taxes on banks’ profits, has been appointed by the Chancellor to the Bank of England’s board.

Paul Nowak, General Secretary of the TUC, will take a non-executive director role for a four-year term.

Chancellor John Healey has also appointed Refinitiv founder David Craig and top City investment manager Hanneke Smits to four-year terms.

Nowak was a former call centre worker and has been a trade unionist throughout his career. He was appointed the TUC’s general secretary in 2022, taking over from Baroness Frances O’Grady after a decade at the helm.

The TUC represents 47 unions and 5.3 million workers in the UK.

Recently, Nowak has led the TUC’s calls for the Chancellor to increase taxes on Britain’s banks' profits, arguing that the money raised could help bolster cost-of-living support for households.

Mr Nowak said yesterday: “Higher interest rates have meant mortgage misery and bigger bills for the rest of us, but the big banks are raking it in.

“Taxing bank profits to cut bills is plain common sense.”

The Court of the Bank of England, the board's official name, oversees the Central Bank’s strategy, governance, budget and risk framework. It is separate from the Bank of England’s team that sets interest rates.

Sterling weakened yesterday, driven mainly by the widening U.S./UK interest rate differential and softer UK inflation signals. The pound fell against the dollar and was broadly flat against the euro, as markets positioned ahead of today’s BoE decision.

The Federal Reserve has unanimously voted to raise interest rates for the first time in three years. It has signalled it might hike again this year, a move that will test the delicate relationship between President Donald Trump and his new Fed chair, Kevin Warsh.

Central Bankers are increasingly worried that inflation, worsened by soaring oil prices and an artificial intelligence investment boom, is not on a path back to the 2% target.

The decision comes less than seven weeks before elections that will determine the balance of power in Congress for the next two years, as investors have already been driving long-term rates to nearly two-decade highs.

The Fed’s benchmark rate is now set between 3.75% and 4%.

“Inflation remains elevated,” the Central Bank’s rate-setting committee said in its post-meeting statement. “Today’s policy action will support a timelier return to the Committee’s 2% target.”

The rate increase signals the Fed’s seriousness about combating inflation, which has remained above target for more than five years, but markets are hungry for information on what comes next. Already, Wall Street is betting that more rate hikes could be in store, which would further stoke tensions with the President, who will likely already be frustrated by the Fed’s action this week.

Trump has repeatedly called on the Fed to lower borrowing costs and has regularly clashed with former Fed Chair Jerome Powell over Powell’s resistance. Interestingly, under Powell, the Fed cut rates three times last year.

Kevin Warsh made his opening statement after the FOMC voted to raise interest rates for the first time in three years. Warsh said elevated inflation remained a concern despite domestic spending, productivity growth, and capital investment. The Fed’s predominant focus will remain on controlling inflation, Warsh told reporters after the hike.

"So our predominant ⁠focus ⁠is on ⁠the price ​stability side of our ​mandate. ⁠The plain fact is that ⁠inflation is too high, and has ⁠been for too long. This summer's inflation readings do not tell me that underlying ⁠trends have meaningfully improved," Warsh told his news ​conference.

Last evening Trump told the White House press corps that he counselled Warsh to vote for an interest rate hike because other Fed policymakers were expected to vote that way anyway. The Washington Post reported last evening.

"I told Kevin, 'You might as well vote with the board because it's just not going to matter. The Committee is very hostile,” said Trump. "They're very political. They're doing the wrong thing. They're a bunch of politicians. They are people put on by politicians,” he added.

Trump also said he doesn't expect Warsh to follow his directions, saying he wanted the Fed "to be independent.”

Retail sales rebounded sharply in August as households boosted purchases of a range of goods and spent more at restaurants and bars, reinforcing the economy's resilience even as consumers grow more anxious about high inflation.

The stronger-than-expected report from the Commerce Department prompted economists to upgrade their third-quarter GDP growth estimates. Inflation jitters were underscored by news of a surge in import prices last month, amid strong increases in the costs of capital and consumer goods.

The reports followed data this month showing that producer and consumer prices accelerated in August, while the labour market regained its poise after wobbling through much of the summer.

The pace of underlying consumer spending appears to be advancing at a healthy rate. This should reassure markets about the resilience of the U.S. economy amid increasing short-term headwinds to growth, including higher interest rates, a renewed spike in oil prices, trade disruptions, and waning support from tax cuts.

The dollar strengthened yesterday across most major FX pairs, driven primarily by the Federal Reserve’s 25bp rate hike and a sharp rise in U.S. Treasury yields. This pushed it to multi‑week highs and kept it firmly bid throughout the session.

Eurozone inflation is not spreading as widely as in earlier episodes. However, policymakers remain attentive to developments, particularly after a recent surge in gas prices, Portuguese Central Bank Governor Alvaro Santos Pereira said in remarks Reuters reported yesterday.

Speaking at an event hosted by the European Economics and Financial Centre at the Portuguese embassy in London, Pereira, who sits on the European Central Bank Governing Council, said inflation is not spreading or broadening as quickly as in 2022. He cautioned that this does not rule out such broadening. He said officials should monitor the situation closely over the coming months to determine whether price pressures are becoming more widespread.

The ECB raised Eurozone interest rates last week for the second time this year, and financial markets are pricing in at least three additional increases over the next 12 months.

Pereira said the jump in natural gas prices was among the developments he is watching most closely. He also pointed to the artificial intelligence boom as many of his colleagues have, and its effect on global growth and inflation as another shock the Central Bank is contending with. He added that many risks have clearly increased in recent months.

Pereira sits in the middle of the ECB’s ‘hawkish league table’, less hawkish than Schnabel or Vujicic, but more inclined to favour a rate hike than Kazimir or Radev.

France will support former Dutch Central Bank chief Klaas Knot to succeed Christine Lagarde as President of the European Central Bank as part of a broader deal that could see a French candidate appointed as the ECB's chief economist, Reuters also reported yesterday.

Knot, 59, is a leading figure in the discussion. A monetary economist by training, he served as president of the Dutch central bank from 2011 to 2025. He served on the ECB's Governing Council for 14 years, giving him extensive experience in eurozone monetary policy. His challengers are expected to be former Spanish Central Bank Governor Pablo Hernández de Cos and current German Bundesbank President Joachim Nagel.

In a letter seen by Euronews, European Central Bank staff members have questioned the institution’s stability amid rumours of the early departures of its president, Christine Lagarde, and board member Isabel Schnabel, as well as Chief Economist Philip Lane later in the year.

The staff calls on the board to provide "appropriate clarity regarding potential leadership transitions", as discussions of major departures can affect both monetary policy and ECB internal reforms.

"We do not take a position on the accuracy of these reports, nor do we question the right of any individual to consider future professional or public responsibilities," the staff members write, referring to press coverage of the rumours. "However, when such possibilities concern members of the Executive Board, and specifically the ECB President, they inevitably raise institutional questions."

In early February, the Financial Times, which also first reported the letter, reported on a possible early departure by Lagarde before the end of her mandate in October 2027.

The Euro weakened yesterday, slipping modestly against the U.S. dollar while remaining broadly stable against most other major currencies. The move was driven mainly by a stronger USD and higher U.S. yields, rather than Euro-specific news.

Have a great day!