📌 THIS WEEK IN BRIEF:

Last week's decision looked like a repeat of July on the surface. Underneath, the outlook shifted more than the headline vote suggests.

Same hold, same split, worse forecast

The Monetary Policy Committee voted 6-3 to hold Bank Rate at 3.75% on 17 September, with Megan Greene, Catherine Mann and Huw Pill again voting for an immediate rise to 4%, exactly as they did in July. That's the sixth hold of the year, and the vote split hasn't moved at all.

What has moved is the forecast underneath it. Back in July, the Bank expected inflation to reach around 3.2% by the end of 2026. It's now projecting inflation will climb to slightly above 4% in the first quarter of 2027, a genuinely steep upward revision driven by persistently elevated energy prices tied to the ongoing conflict in the Middle East. August's CPI reading of 3.1% is already tracking well ahead of where the Bank thought it would be at this point.

Governor Andrew Bailey put it plainly in the Bank's own video statement: higher global energy costs have so far had a limited effect on UK price and wage setting, but the longer that volatility continues, the bigger the impact, and the more likely a rate rise becomes. That's about as close as a central bank gets to telling you what it's planning to do next without actually doing it yet.

A second, quieter decision that matters just as much

Away from the rate itself, the Committee voted unanimously to start actively reducing its stock of government bond holdings to zero, rather than simply letting them mature. The plan unwinds at an average pace of £46 billion a year through to 2034, via £20 billion in annual sales alongside gilts that mature naturally. The Bank's total holdings have already fallen from a peak of £895 billion to £489 billion as of 9 September.

Selling more gilts into the market adds supply at exactly the moment gilt yields are already elevated. More supply usually means investors need a higher yield to absorb it, which is one more reason to expect borrowing costs to stay firm rather than ease quickly.

What this means for the rate you're actually offered

Mortgage rates haven't moved in a single clean direction this month. HSBC, Barclays, NatWest and Santander have all raised selected fixed rates since the start of September, while Family Building Society temporarily pulled its fixed-rate range entirely. Against that, the average 2-year fix at 75% loan-to-value stands at 5.55% as of this week, which is actually a touch lower than some of the rates on offer in early September. The honest read is that pricing has been genuinely volatile lender by lender, not moving smoothly in either direction.

To put a real number on it: moving from 5.63% to 5.88% on a £250,000 repayment mortgage over 25 years adds roughly £38 a month, or about £456 over a year. That's the scale of change a relatively small rate shift actually produces once it hits a typical mortgage.

Markets currently imply, through interest rate futures, that the average 2-year fix could rise from 5.55% today to as much as 6.48% by August 2027, if the rate path currently priced by markets plays out and lending spreads return to their long-run average. That's not a forecast, it's simply what today's market pricing would mean if nothing changes between now and then, and market pricing moves constantly and has been wrong before.

First-time buyers: Rates remain genuinely unsettled, moving up at some lenders and down at others in the same month. Don't assume today's best deal will still be there next week. If a rate works for your budget, that's the moment to act, not a signal to keep shopping indefinitely.

Remortgaging in the next six months: The gap between now and the 5 November decision, which comes with a full new set of forecasts, is worth using to reserve a rate. Most lenders let you switch down if pricing improves before completion, so there's little cost to locking in early.

Landlords: The Bank's own inflation forecast rising to above 4% makes a November or December rate rise a live possibility, not a fringe scenario. Stress-test any Q4 refinancing at 6% or higher rather than today's average.

The Bank's upward revision to its inflation forecast is the single most important economic signal this week. Going from an expected 3.2% by the end of this year to slightly above 4% by early next year is a meaningfully worse path, and it's being driven almost entirely by energy costs tied to the conflict in the Middle East rather than anything happening domestically in wages or spending.

That distinction matters for what happens next. An energy-driven inflation spike is, in principle, more likely to fade once the underlying cause eases than inflation driven by persistent wage growth. But the Bank has been explicit that it won't wait indefinitely for evidence the energy shock is spreading into wages and prices more broadly before acting, which is exactly why three members already want to raise rates now rather than wait for confirmation.

How private credit stress reaches your street.

No fresh development specific to this week, but the backdrop the Bank has been tracking hasn't eased. US private credit defaults hit a record 6.0% in April, and companies backed by this kind of lending saw a 9.2% default rate across 2025. The Bank of England's own stress test of the largest players in this market, firms like Blackstone, Apollo and KKR, expected participants to finish their scenario work this month, with interim findings due later in 2026.

The connection to housing hasn't changed. Roughly 45% of UK development finance comes from exactly this kind of non-bank lender, and UK banks hold an estimated £173 billion of exposure to these funds and the companies they lend to. A bond market under strain from both inflation risk and the Bank's own gilt sales is precisely the environment in which credit conditions elsewhere can tighten too.

What is happening: The Bank held rates but revised its own inflation outlook sharply higher, and voted to start actively selling gilts rather than just letting them mature. Both signal a central bank preparing the ground for a possible rate rise rather than one that's settled into a comfortable hold.

Why it matters: Fixed mortgage pricing tracks where markets expect rates to go, not just where they are today. A worse inflation forecast and more gilt supply both point toward continued pressure on borrowing costs, even though this week's average rate ticked down slightly at 5.55%.

Data: Mortgage Advice Bureau via HomeOwners Alliance, Moneyfacts; 22-23 September 2026

The real cost of a rate move is easy to lose in percentages. Moving from 5.63% to 5.88% on a £250,000 mortgage over 25 years adds about £38 a month, roughly £456 a year. Around 1.8 million fixed rate mortgages expire in 2026, and anyone whose deal is ending should treat reserving a new rate as a priority rather than something to leave until closer to the date.

Wales has held up reasonably well through a year that's been difficult for the more expensive southern English markets. Average prices remain well below the England and Wales combined average, which continues to support demand even with mortgage rates sitting above 5.5%.

Cardiff anchors much of the region's activity, drawing steady demand from its position as the largest city and main employment hub, while smaller towns across South Wales benefit from commuter links into Cardiff and Bristol without carrying the price tag of either city centre. Wales also runs its own devolved property tax, Land Transaction Tax, in place of stamp duty, which has occasionally created modest divergence from England's market at the margins.

The same caution applies here as elsewhere in the UK's more affordable regions. Lower average prices help affordability, but they also mean the local economy carries more weight in determining whether that resilience holds if the labour market weakens further this autumn.

Next edition: East Midlands revisited.

A hold at 3.75% sounds like nothing has changed. The forecast underneath tells a different story, and it's worth knowing how to read the difference.

Watch the forecast, not just the vote. A steeper inflation path from the Bank itself is a stronger signal than the vote split alone. When the Bank raises its own forecast this much in six weeks, it's telling you where its thinking is heading, even while the rate stays put for now.

Treat the November decision as the one that matters most. It comes with a full new Monetary Policy Report and fresh quarterly projections, unlike September's interim meeting. If a rise is coming, November is the more likely moment for it to actually happen.

Lock in before that date if your deal allows it. Reserving a rate now costs nothing if pricing improves, and protects you if the Bank's more hawkish tone translates into higher swap rates before November arrives.

Send questions to [email protected]

This week: "The Bank held rates but says inflation is going to be worse than it thought. Isn't that contradictory?"

It sounds like it, but it isn't. Interest rates work with a lag of many months, so raising them today wouldn't do much to slow inflation that's already been set in motion by energy prices rising months ago. The hold reflects a judgment that current rates are still restraining domestic demand and wages, even as an external shock, energy prices tied to the conflict abroad, pushes the headline number higher regardless. The revised forecast is the Bank's honest acknowledgement that this pressure is worse than expected, not necessarily that today's rate is wrong for the job.

The genuine tension is if the energy shock starts feeding into wages and everyday prices more broadly. That's the second-round effect the Bank has said it won't wait too long to see evidence of, which is why three members already want to act now rather than later.

Educational only. Not financial advice. Always consult an FCA-regulated broker.

1. Bank of England Holds at 3.75%, Sharply Raises Inflation Forecast. Sixth hold of 2026, same 6-3 split. Inflation now expected to reach slightly above 4% by early 2027, up from the earlier 3.2% projection. (Bank of England, 17 September 2026)

2. Bank Votes to Actively Sell Down Its Gilt Holdings. Holdings reduce to zero via roughly £20bn of annual sales through to 2034, on top of natural maturities. Down from £895bn to £489bn already. (Bank of England, September 2026)

3. Mortgage Rates Move in Both Directions This Month. Some lenders raised selected fixed rates, others trimmed pricing, leaving the average 2-year fix at 5.55%. (Mortgage Advice Bureau, Moneyfacts, September 2026)

Before the more consequential 5 November decision, model your current payments and what continued pressure on rates would mean for your monthly budget.

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