Bank of England: Cautious hold with upside risks – TD Securities

The Bank of England maintained its Bank Rate at 3.75% in a 6-3 vote, signaling a cautious approach to monetary policy amidst ongoing inflation risks. Led by Pooja Kumra, TD Securities' macro team highlighted revised GDP and inflation projections, geopolitical energy risks, and the potential need for further restrictive policy measures in the future.

Despite the hawkish tone compared to July, the committee remains open to rate hikes in November or December if necessary. Governors Pill, Greene, and Mann dissented, voting for an increase. The Bank of England now anticipates inflation to reach 4% in the first quarter of 2027, a more significant upward shift than in July. Governor Bailey noted the geopolitical context intensifies upside risks due to unresolved conflict.

While energy price pass-through has been weaker than expected, there is limited evidence of second-round effects. If the Middle East conflict persists, policy tightening may become essential. The MPC's July forecasts supported the argument for a policy hold, but recent geopolitical risks and potential energy shocks suggest further tightening could be required.

The November meeting will provide updated forecasts and new data on demand and supply-side inflation developments.