Bank of England Holds Rates Steady as Fed Raises, Defying Rate-Hike Momentum

Bank of England Diverges from Fed

The Bank of England defied the Federal Reserve's rate-hike lead, leaving rates unchanged on Thursday, September 18, marking a sharp divergence in monetary policy between the two central banks. This decision came just two days after the Federal Reserve raised rates for the first time since July 2023.

Fed's Historic Rate Move

The Federal Reserve voted 12-0 to raise the federal funds rate from a range of 3.5% to 3.75% to a new target rate of 3.75% to 4%, marking the first interest rate hike since July 2023 and coming after the Fed left rates unchanged at its first five meetings this year. Updated projections showed that 16 of 18 officials see the possibility of at least one more 25-basis-point rate hike later this year with four penciling in two additional rate increases.

Economic Context Behind Divergence

The Fed noted that inflation remains elevated, with today's policy action aimed to support a timelier return to the Committee's 2% goal. The inflation rate was 3.4%, as of August 2026. Meanwhile, UK inflation jumped to 3.1% as energy costs soared, yet the BoE chose to hold its benchmark rate steady.

Market Implications

The divergent approaches by the Fed and BoE reflect different assessments of inflation trajectories and economic resilience on either side of the Atlantic. While the Fed is tightening amid sticky inflation and robust growth, the Bank of England appears more cautious about adding to borrowing costs despite elevated price pressures. The Fed's updated projections show GDP expanding at a slightly faster pace in 2026 (2.3% vs 2.2% in the June projection) and 2027 (2.4% vs 2.3%), with PCE inflation seen higher this year (3.7% vs 3.6%) but the forecast for 2027 kept at 2.3%.