UK MONETARY POLICY · October 2026
Inflation pressure +0.9 ▲ inflationary
Policy stance +0.1pp · Neutral
CPI inflation 3.1% in August (target 2%) · Bank Rate 3.75% · Last MPC 17 Sep: 6-3 · Next MPC 5 November
Inflation expectations are above 2%-consistent levels (+1.4), led by firms' price expectations and market-implied inflation; demand is running below capacity (−0.6), led by payroll employment and the Agents' capacity utilisation score; supply capacity is weakening (+0.8), led by unit labour costs; external costs are pushing prices up (+1.7), led by gas prices and oil prices. Policy is close to neutral: a real Bank Rate of 1.1% against an estimated neutral rate of 1.00%.
Part 1
Where the economy is
Headline data, for orientation.
CONTEXT
The economy at a glance
Headline series for orientation; they are not scored. Hover a chart, or focus it and use the arrow keys, to read values.
CPI inflation
Consumer prices, % change on a year earlier
3.1% August 2026
Source: Office for National Statistics
GDP growth
Real GDP, latest 3 months on a year earlier, %
1.7% August 2026
Axis cut off at −5% to 10%; between Apr 2020 and Mar 2022 values reached −21.2% and 25.7%.
Source: Office for National Statistics.
Unemployment rate
% of the economically active, aged 16+, 3-month average
4.9% July 2026
Source: Office for National Statistics
Bank Rate
Bank of England policy rate, %, end of month
3.75% October 2026
Source: Bank of England
Sterling–dollar ("cable")
US dollars per pound, monthly average
$1.32 October 2026
Source: Bank of England
Part 2
Inflation pressure ahead
The terms of the Phillips curve: expectations, slack on the demand and supply sides, and external cost-push. Together they give the inflation-pressure score.
Expectations
Are inflation expectations anchored at 2%?
+1.4 ▲ inflationary
3 up · 0 neutral · 0 down
Demand
Is demand running ahead of the economy's capacity?
−0.6 ▼ disinflationary
0 up · 3 neutral · 2 down
Supply
Is the economy's capacity growing more slowly than normal?
+0.8 ▲ inflationary
1 up · 1 neutral · 0 down
Cost-push
Are external costs pushing up prices?
+1.7 ▲ inflationary
3 up · 1 neutral · 0 down
Inflation pressure is +0.89: expectations +0.47, demand −0.15, supply +0.20, cost-push +0.37, using config weights (expectations 0.35, demand 0.25, supply 0.25, cost-push 0.22).
With estimated weights it is +0.74 and the verdict Hawkish risk. The cost-push weight is multiplied by 1.44, because second-round effects are about 1.9× larger when CPI inflation is above 3.1%.
Inflationary (z above +0.5)NeutralDisinflationary (z below −0.5)Neutral band ±0.5
Scores are z-scores on a fixed −3 to +3 scale: z = s·(x − b)/σ, clipped at ±3. Positive always means inflationary; beyond ±0.5 an indicator points up or down. Hover or focus any z for its calculation.
EXPECTATIONS · PHILLIPS CURVE: EXPECTED INFLATION
Are inflation expectations anchored at 2%?
Block score +1.4 ▲ inflationary, the equal-weighted mean of 3 indicators. 3 up · 0 neutral · 0 down.
| Indicator | Latest x | Date | Benchmark b | Scale σ | Sign s | z, −3 to +3 |
|---|---|---|---|---|---|---|
| Firms' expected own-price growthz clipped in 32% of periods since 2021 | 3.7 % | Sep 2026 | 2.43 | 0.70 | +1 | +1.8 ▲ |
| Household inflation expectations | 3.2 % | 2026 Q3 | 2.74 | 0.65 | +1 | +0.7 ▲ |
| Market-implied inflation, 5 years | 3.1 % | Oct 2026 | 2.45 | 0.47 | +1 | +1.5 ▲ |
Source: Bank of England · Bank of England Inflation Attitudes Survey · Decision Maker Panel
Source: Bank of England.
Source: Decision Maker Panel (Bank of England, Stanford University and University of Nottingham).
DEMAND · PHILLIPS CURVE: SLACK, DEMAND SIDE
Is demand running ahead of the economy's capacity?
Block score −0.6 ▼ disinflationary, the equal-weighted mean of 5 indicators. 0 up · 3 neutral · 2 down.
| Indicator | Latest x | Date | Benchmark b | Scale σ | Sign s | z, −3 to +3 |
|---|---|---|---|---|---|---|
| Unemployment rate vs u* | 4.9 % | Jul 2026 | 4.88 | 0.69 | −1 | 0.0 ● |
| Vacancies per unemployedz clipped in 28% of periods since 2021 | 0.4 ratio | Jul 2026 | 0.38 | 0.14 | +1 | +0.2 ● |
| PAYE payrolled employees | −0.5 % ann. | Jul 2026 | 1.48 | 1.00 | +1 | −2.0 ▼ |
| Real GDP growth vs potential | 2.6 % ann. | Aug 2026 | 1.40 | 2.61 | +1 | +0.5 ● |
| Capacity utilisation (Agents) | −1.2 score | 2026 Q3 | 0.00 | 0.75 | +1 | −1.7 ▼ |
Source: Bank of England Agents · HMRC PAYE Real Time Information (via ONS) · Office for National Statistics
Source: HMRC PAYE Real Time Information, published by the Office for National Statistics, licensed under the Open Government Licence v3.0.
Source: Office for National Statistics, licensed under the Open Government Licence v3.0.
SUPPLY · PHILLIPS CURVE: SLACK, SUPPLY SIDE
Is the economy's capacity growing more slowly than normal?
Block score +0.8 ▲ inflationary, the equal-weighted mean of 2 indicators. 1 up · 1 neutral · 0 down.
| Indicator | Latest x | Date | Benchmark b | Scale σ | Sign s | z, −3 to +3 |
|---|---|---|---|---|---|---|
| Unit labour cost growth | 5.2 % y/y | 2026 Q1 | 2.00 | 1.79 | +1 | +1.8 ▲ |
| Productivity growth vs trend | 0.5 % y/y | 2026 Q1 | 0.27 | 1.39 | −1 | −0.2 ● |
Source: Office for National Statistics
COST-PUSH · PHILLIPS CURVE: COST-PUSH
Are external costs pushing up prices?
Block score +1.7 ▲ inflationary, the equal-weighted mean of 4 indicators. 3 up · 1 neutral · 0 down.
| Indicator | Latest x | Date | Benchmark b | Scale σ | Sign s | z, −3 to +3 |
|---|---|---|---|---|---|---|
| Brent crude oil price | 96.7 % y/y | Oct 2026 | 0.00 | 35.44 | +1 | +2.7 ▲ |
| UK wholesale gas price | 136.9 % y/y | Sep 2026 | 0.00 | 36.00 | +1 | +3.0 ▲ |
| Sterling effective exchange rate | 1.0 % y/y | Oct 2026 | 0.00 | 6.54 | −1 | −0.2 ● |
| Import prices | 6.5 % y/y | Aug 2026 | 0.00 | 4.96 | +1 | +1.3 ▲ |
Source: Bank of England · FRED, Federal Reserve Bank of St. Louis · Office for National Statistics
Source: Office for National Statistics, licensed under the Open Government Licence v3.0.
Source: U.S. Energy Information Administration via FRED, Federal Reserve Bank of St. Louis.
Part 3
Monetary policy
Whether policy is stimulating or restraining the economy, and where markets expect it to go.
POLICY STANCE
Is policy stimulating or restraining the economy?
Bank Rate against the neutral rate, the rate at which policy neither stimulates nor restrains the economy. Both are in real terms with the same expected inflation, so the gap is the same as in nominal terms.
Neither: close to neutral
Bank Rate 3.75% against a neutral rate of 3.60%: +0.15pp above neutral in real terms (neutral zone 0.38 to 1.38% real)
| Component | Value | Date | Basis |
|---|---|---|---|
| Bank Rate | 3.75% | 15 Oct 2026 | Bank of England |
| − Expected inflation | 2.6% | MPR July 2026 year-ahead CPI projection | |
| = Real rate | 1.15% | ||
| r*, suite headline | 1.00% | Weighted suite of estimators, rounded to 0.25pp | |
| Neutral zone | 0.4 to 1.4% | Range of the weighted estimators, at least 0.5pp wide | |
| Gap: real rate − r* | +0.15pp | Neutral |
POLICY PATH
Where markets expect Bank Rate to go
Bank Rate over the past two years and the path priced in sterling overnight index swaps (OIS) on 15 October 2026, against the nominal neutral zone: the r* zone plus year-ahead expected inflation (2.6%), as in the stance above. Ticks mark MPC decisions.
OIS forwards are SONIA rates, which run a few basis points below Bank Rate, and include term premia.
The neutral zone uses expected inflation over the next year; further ahead it is only indicative. Source: Bank of England; Monetary Space estimates of r*.