Sterling on course for its worst week since May

By the Editorial Team · Saturday, September 19, 2026

The Bank of England chose to keep its interest rate at 3.75 percent, leading the British pound to its largest weekly drop since May, falling nearly 1.4 percent against the US dollar. This cautious stance contrasts with other major central banks and signals possible rate hikes later this year if energy prices push inflation above target.

The British pound is headed for its worst weekly performance since May after the Bank of England opted not to raise interest rates amid global monetary tightening. Sterling fell to nearly $1.33 against the US dollar, marking a decline of almost 1.4 percent since last weekend, the largest drop in several months.

The Bank of England maintained its benchmark interest rate at 3.75 percent despite ongoing inflation concerns driven by the conflict in Iran and surging energy prices. Governor Andrew Bailey also paused the sale of government bonds acquired during the central bank's quantitative tightening program, a move aimed at lowering borrowing costs in the bond market.

This decision contrasts with actions taken by other major central banks. The European Central Bank has increased rates twice this year to combat inflation, while the US Federal Reserve raised its benchmark rate Wednesday for the first time in three years. Meanwhile, the Bank of Japan has lifted borrowing costs to a three-decade high.

Higher interest rates typically attract foreign investment by offering better returns, which tends to bolster a currency’s value. Sterling’s depreciation therefore reduces the spending power of British travelers abroad and has also weakened its position against the euro.

The Bank of England resisted calls for a rate hike despite official data showing inflation at 3.1 percent in August, well above the 2 percent target. However, Bailey indicated that rates could rise in forthcoming months, anticipating a 24 percent jump in energy bills come January that could push inflation beyond 4 percent next year.

This measured approach appears cautious compared to the more immediate tightening steps taken by the US, European, and Japanese central banks. Morgan Stanley analysts described the situation as finely balanced. Bruna Skarica, chief UK economist at Morgan Stanley, said the Bank’s future decisions will depend heavily on energy price movements. If oil and gas costs decline enough to keep inflation peaking below 4 percent and falling back toward the 2 percent target by late 2027, the Monetary Policy Committee may hold rates steady. Otherwise, Skarica expects two rate increases in November and February.

This article was reported by synthesizing coverage from multiple independent news outlets to present a balanced, unbiased account. Read about our editorial standards. Spotted an error? Let us know.