Base Rate unchanged as Bank of England plots its own course
17 September 2026
The Bank of England Monetary Policy Committee (MPC) at its latest meeting left the Base Rate at 3.75%, taking it out of step with the ECB and the US Federal Reserve, who recently increased rates by 25 bps each. While we suspect that the MPC will hike the Base Rate by 25 bps by year end, clearly Threadneedle Street is taking the view that the situation in the UK is less concerning than is the case abroad.
Typically, the Bank of England signals in advance when a rate rise is coming, so the absence of such messaging meant that a no change decision was widely expected. With other central banks tightening policy, and inflation reaching 3.1% in August, many were expecting the MPC to give an unambiguous signal higher rates were coming.
However, the split of voting on the decision – six members supporting no change, three calling for a 25 bps hike – was unchanged on the July meeting, despite the rise in fuel prices in August and September. Also, the language in the accompanying statement has become more hawkish, but not to the extent that clearly signals a rate rise is imminent.
The minutes of the meeting indicate that policymakers believe that the slow UK labour market (company payrolls have fallen for seven consecutive months this year) is keeping a brake on inflation by preventing a wage-price spiral. Also, the rise in gilt yields has pushed up market interest rates and therefore done of the job for the MPC of raising rates.
Nevertheless, the MPC did acknowledge that if energy prices remain high for long enough, eventually inflation will spread to other prices which will necessitate a response.
The cause of the present burst of inflation is the war in the Middle East, and at the time of writing the situation there appears to be worsening. Consequently, we are forecasting one 25 bps increase this year, then steady rates in 2027. Our thinking is that the Bank will implement a single rate rise to make a statement that it is committed to fighting inflation, in order to maintain credibility in the eyes of the financial markets. Yet, ultimately the MPC will conclude rate hikes will not reduce the oil price, making further increases pointless.
Worth noting from the MPC minutes is that the Bank of England has upped its forecast for Q3 2026 GDP growth, from 0.1% previously to 0.4%. This is in step with a general message from the MPC today, that the rate setters see the UK economy as performing resiliently in the face of global shocks. This contrasts with much of the narrative we have heard lately that has been downbeat on the UK economy. Property investors should similarly note that an objective look at the data suggests that recent pessimism on the economic outlook is looking overdone.
From a property market perspective, this MPC meeting offers some reassurance, as rate setters are in no hurry to hike rates. Indeed the ‘Keep calm, and carry on’ tone in the MPC’s communications should encourage property investors to look at the market dispassionately, and ask whether assets look good value in the context of an economy that is achieving steady (if unremarkable) growth, and the central bank does not feel under pressure to hike interest rates quickly? If we consider real estate occupier markets, take-up levels are robust and vacancy rates are steady. With these fundamentals in place of steady income from tenants and limited supply for good quality stock, property as an investment today has a good business case.
