The Bank of England Holds at 3.75% — But Warns of Hikes to Come

The Bank of England's Monetary Policy Committee voted 6–3 in September 2026 to hold the base rate at 3.75%. Three members voted for a 25 basis point hike to 4%. That dissent matters. When a third of the committee wants to raise rates and the gilt market is pricing in further tightening, businesses planning ahead cannot treat 3.75% as settled.

Here is what the decision tells us about the rate environment, why UK rates are diverging from other G7 economies, and what it means for businesses negotiating commercial property.

The Split That Markets Are Watching

A 6–3 split is not a comfortable hold. In MPC voting patterns, a one-third minority pushing for a hike signals that the committee's centre of gravity is closer to a rise than the headline decision suggests. The three dissenters cited:

• CPI inflation at 3.1% — above the 2% target and moving in the wrong direction
• Services inflation remaining sticky, particularly in labour-intensive sectors
• Wage growth still running ahead of levels compatible with returning inflation to target

The six who voted to hold were not expressing confidence that rates have peaked. They cited concerns about the impact of tighter policy on an already slowing economy — and the risk that hiking into a weakening labour market could be counterproductive.

The practical effect: markets are pricing in a greater than 60% probability of a 25 basis point rise by the end of 2026.

Why UK Rates Are a G7 Outlier

The US Federal Reserve has been cutting rates since late 2025. The European Central Bank has moved through two cuts this year. Japan and Canada are also in easing cycles. The UK is the exception.

The reasons are structural:

Fiscal expansion. UK government spending has increased materially since 2024, partly financed by gilt issuance. More supply of gilts pushes prices down and yields up. The debt management office has had to pause a scheduled gilt auction after insufficient demand — an unusual and notable event.

Imported inflation. Sterling's decline relative to the dollar and euro in 2025 raised the cost of imported goods and energy. That pass-through is still working its way through to CPI.

Labour market stickiness. UK unemployment remains low by historical standards. While there are signs of easing, wage settlements above 4% are still common in parts of the economy.

These factors mean the Bank of England cannot follow the global easing cycle without risking a second wave of inflation. The policy divergence is likely to persist through at least the first quarter of 2027.

What a Rate at 4% Would Mean

If the MPC raises rates to 4% — which markets consider probable before year-end — the commercial property implications sharpen:

Refinancing becomes more expensive. Commercial property loans are already being refinanced at significantly higher rates than the 2015–2021 cohort. A move to 4% adds another 25 basis points across new lending.

Development stalls further. Construction financing depends on the gap between build cost, interest carry, and end value. That gap has already closed to the point where most speculative development in secondary locations is unviable. A rate rise narrows it further.

Secondary yields drift out. Investors require higher income returns from property when the risk-free rate rises. Where rents are not growing, the only way to deliver a higher yield is a lower price.

Grade A, well-let property holds. Institutional-quality assets with strong tenant covenants and long unexpired terms are more insulated. The flight to quality that characterised 2025 is likely to continue.

What This Means for Business Occupiers

If you are looking for commercial space, the rate environment has three practical implications:

Landlords with expiring debt are under pressure. A landlord who borrowed at 2.5% in 2019 and faces a 2026 refinancing at 7.5% is in a materially different position than they were 18 months ago. That pressure translates into motivation to let vacant space quickly and to a creditworthy occupier — even at a rent slightly below their initial ask.

New supply is limited. With development viability tight, the speculative pipeline that would normally replenish good-quality space over a 3–5 year horizon is thinner than usual. Businesses with requirements for new or recently developed space should expect more competition for a smaller pool.

Lease terms are negotiable. In an environment where landlords are uncertain about the direction of rates, locking in a reliable tenant with a manageable lease structure — break clauses, stepped rents, reasonable review provisions — is often preferable to holding out for a higher headline rent.

Acting in an Uncertain Rate Environment

Rate uncertainty tends to make both landlords and occupiers more conservative. Landlords are less willing to spend capex on speculative refurbishment. Occupiers want shorter commitments and more flexibility.

This is precisely where RE:match works well. Rather than spending months approaching agents and viewing space that may not fit your requirement, you post a single brief describing what you need. Landlords and agents with matching space come to you — including those who are motivated to move quickly.

Post your requirement on RE:match — it takes a few minutes and costs nothing. Landlords and agents with matching space respond directly to your brief at rematch.co.uk.

FAQ: Bank of England Rates and Commercial Property

What did the Bank of England decide in September 2026? The MPC voted 6–3 to hold the base rate at 3.75%. Three members voted for a 25 basis point rise to 4%.

Why is UK inflation still above target? CPI was 3.1% in August 2026. Contributing factors include sticky services inflation, wage settlements running above 4% in some sectors, and pass-through from sterling's weakness in 2025.

Will the Bank of England raise rates again in 2026? Markets are pricing in a greater than 60% probability of a 25 basis point rise before year-end. This is not certain, but the 6–3 split suggests the committee's tolerance for persistent above-target inflation is limited.

How do Bank of England rates affect my commercial lease? Base rate rises increase the cost of commercial property debt, which puts pressure on landlords with expiring loans. This can increase their motivation to let vacant space and may improve negotiating conditions for credible occupiers.

Should I sign a longer or shorter lease given rate uncertainty? This depends on your business needs. Shorter leases with break clauses give flexibility but can limit incentive packages. Longer leases can secure better terms and more landlord investment in fit-out. In the current environment, a 5–10 year lease with a break at year 3 or 5 is a common middle ground.