Client Update - 18th September 2026

As widely expected, the Bank of England (BoE) left UK interest rates unchanged at 3.75% at this week's Monetary Policy Committee (MPC) meeting. However, while rates were left on hold, the vote split of 6-3 and the tone of the accompanying statement, suggest policymakers remain alert to inflation risks and are not yet ready to declare victory over rising prices.

Three MPC members, including Chief Economist Huw Pill, voted in favour of a 0.25% rate increase. This reflects growing concern that recent inflationary pressures, particularly from higher energy prices, could prove more persistent than previously anticipated.

Recent developments in the global energy markets, including the drone attack last week on key oil installations in the Middle East, have complicated the inflation outlook. Brent crude oil prices initially fell from around $90 per barrel to $80 following the Bank's previous meeting, but escalating tensions involving Iran subsequently pushed prices back above $100 per barrel.

This is significant because the Bank's July growth forecasts were based on substantially lower energy prices. While oil is now trading at levels consistent with, or even above, those envisaged under the Bank's more adverse economic scenarios, the wider UK economy has not yet exhibited the sustained wage growth or broad-based pricing pressures that would normally accompany a more entrenched inflation backdrop.

This distinction is important. Policymakers currently view the rise in inflation as primarily an externally driven energy shock rather than evidence of overheating domestic demand. As a result, the MPC believes it has time to assess whether higher energy costs begin feeding through into wages, services prices, and longer-term inflation expectations. Interestingly, US policymakers disagree, more on that later.

The UK economy has continued to show resilience. Second-quarter GDP growth came in at 1.2%, ahead of expectations, suggesting consumer spending and business activity have remained reasonably robust despite restrictive borrowing costs.

However, other indicators paint a more balanced picture. Unemployment remains at 4.9%, while private sector wage growth slowed to 2.9% in July. Inflation increased to 3.1% in August from 2.9% previously, but much of this appears attributable to higher energy prices rather than a broad resurgence in domestic inflationary pressures.

Taken together, the data provides support for the MPC's decision to pause. Financial conditions remain relatively tight, helping to cool demand and allowing policymakers additional time to determine whether stronger economic growth is sustainable and whether inflationary pressures become more deeply embedded.

Developments across the Atlantic have also become increasingly relevant. On Wednesday, the US Federal Reserve raised interest rates by 0.25%, citing continued strength in the US economy, resilient consumer spending, and concerns that inflation could remain above target for longer than previously expected.

While UK and US economies face different challenges, the Federal Reserve's decision reinforces a broader message emerging from central banks globally: policymakers remain cautious about easing monetary policy too quickly.

US Treasury (debt) yields often act as a benchmark for global government bond markets, meaning rising US yields can place upward pressure on borrowing costs elsewhere, including in the UK. Importantly, the Fed's decision highlights that inflation remains a global challenge rather than a uniquely British one. Although inflation has fallen significantly from the peaks experienced in 2022 and 2023, central banks are demonstrating a willingness to maintain restrictive monetary policies if necessary to ensure price stability is fully restored.

Away from interest rates, the Bank of England also announced a significant change to its quantitative tightening (QT) programme. Rather than setting annual targets for reducing its balance sheet, the Bank has adopted a long-term plan to unwind its stock of gilt holdings by 2034. The strategy will see approximately £20 billion of gilts sold each year alongside naturally maturing bonds, creating a predictable and gradual reduction in the Bank's holdings. This change provides greater visibility and reassurance for investors and reinforces the Bank's preference to use Bank Rate, rather than balance-sheet adjustments, as its primary monetary policy tool. Since peaking at £895 billion, the Bank's gilt portfolio has already fallen to approximately £488 billion.

While headlines continue to focus on inflation, interest rates, and geopolitical risks, it is important to remember that markets have been navigating these uncertainties for several years. We must remember that economic growth remains positive in both the UK and the US, and corporate earnings have generally proven more resilient than many anticipated.

Periods of policy uncertainty can create short-term market volatility, but they also offer opportunity to our investment team and our third-party managers. Attempting to predict individual rate decisions is rarely a successful investment approach. Instead, focusing on your financial goals, building appropriate asset allocation, and maintaining disciplined portfolio management remains the most effective way for us to build and preserve long-term wealth for our clients.

While the path for interest rates may remain uncertain over the coming months, both the UK and global economies continue to demonstrate resilience. For our clients, that resilience provides good reason to remain confident and optimistic about the opportunities that lie ahead. Do have a good weekend.