The Bank of England's Monetary Policy Committee (MPC) voted by six to three to hold Bank Rate at 3.75%, the Bank announced on 17 September.
The Bank said conflict in the Middle East had pushed energy prices higher since its July forecast, with the spot prices of Brent crude oil and UK wholesale gas up 36% and 78% respectively. Inflation, as measured by the consumer prices index (CPI), rose to 3.1% in August.
The Bank estimates that energy, mostly motor fuel, accounted for around 0.7 percentage points of the 1.1-point gap above its 2% target.
Governor Andrew Bailey commented: "So far, higher global energy costs have had a limited effect on price and wage setting in the UK. But the longer this volatility persists, the bigger the impact it will have on inflation, and the more likely it is we will need to raise Bank Rate to ensure that inflation falls back to our 2% target."
Bank staff now expect CPI inflation to reach around 3.75% in the last three months of 2026, up from the 3.2% they forecast in July, and slightly above 4% early in 2027.
The three members who voted for a rise argued that the peak would coincide with next year's pay negotiations and raise the risk that higher prices feed into wages. The majority judged that a soft labour market and higher borrowing costs would hold inflation back for now.
The Bank said quoted rates on two-year fixed mortgages were around 0.95 percentage points higher than before the conflict began. Financial markets were pricing Bank Rate to peak at around 4.9% by the end of 2027, the minutes show, although most respondents to the Bank's survey of market participants in early September expected a prolonged hold.
The MPC announces its next decision on 5 November, a week after Chancellor John Healey's Budget on 28 October.
How the rate outlook affects your mortgage and savings
Bank Rate influences what lenders charge on mortgages and loans and what banks pay on savings. But while it is a guide for the market, swap rates have a bigger direct influence of the pricing of mortgages.
If you have a tracker or variable-rate mortgage, any rise in Bank Rate would feed through to your payments. Rates on new fixed deals follow market expectations and have already risen. Those expectations could fall back if the conflict eases, so the timing of a new fix carries risk in either direction.
For savers, inflation at 3.1% erodes the value of cash that earns less than that after tax. Tax on savings interest held outside an ISA rises from April 2027, when the rates on savings income increase to 22%, 42% and 47%.
A financial planner can work out how higher rates or a longer spell of high inflation would affect your mortgage, savings and retirement income. If your mortgage deal ends in the next year or you hold a large sum in cash, please speak to us before you act.