Bank of England set to hold and slow its gilt sales as banks pencil in hikes

The Bank of England looks set to keep interest rates steady this week despite surging oil prices, Reuters reported¹. The market still widely expects the Bank to hold rates around 3.75 percent, leaving sterling bulls without a clear rationale⁸. UBS expects a hawkish hold on Thursday, with the bigger story a shift in tone that leaves a future rise open⁵.

In sharp contrast to the European Central Bank this month, analysts do not expect the Bank to turn materially more hawkish at its September meeting². It is also poised to slow its bond sale programme, having conceded that the approach has pushed up record high borrowing costs⁶.

Why it matters to investors

Two Wall Street banks now expect increases regardless. Citigroup joined Goldman Sachs on Monday in forecasting Bank of England rate hikes later this year³. Goldman turned more hawkish, forecasting a hike of 25 basis points in November 2026 as inflation persists⁴. City AM reported a top Wall Street bank warning that the Bank will raise rates to four per cent by the end of the year⁷.

The gap between a hold this week and hikes later matters for gilt supply. Slowing the sale of gilts eases one source of pressure on the long end while the policy rate stays put^1,6.

What to watch

Fuel is the transmission channel. Petrol and diesel prices have hit their highest since 2022, according to the RAC, as oil prices remain elevated¹¹. Morningstar asked whether UK inflation will rise above 3 percent, noting that pump prices have risen meaningfully⁹.

GB News reported economists warning that the Bank’s patience is running thin after oil prices surged in the US-Iran war, making a rate rise likely¹⁰. The decision lands in the same week as the Federal Reserve, adding to the pressure on sterling⁸. The tone of the statement, rather than the rate itself, is what the market will trade^2,5.

The two halves of the week’s decision point in opposite directions, and that is the point. Holding the rate while slowing gilt sales treats the long end and the short end as separate problems: one driven by an energy shock the Bank cannot offset, the other by borrowing costs its own sales have helped push to records^1,6,10. Whether Goldman’s November call or the four per cent forecast proves closer will depend on how far pump prices carry into the inflation print^4,7,9.