UK Economy Slows, But BOE May Pause Rate Hikes

Author: Kathleen Brooks, Research Director UK

Date: 23 September 2026

Key Takeaways

• The global economy shows resilience despite challenges.
• Inflation concerns are rising based on PMI data.
• The OECD advises the BOE to hold off on rate hikes.
• Oil prices have ended their longest losing streak in a year.
• Geopolitical pressures appear to be easing.
• Stock markets are in a holding pattern, awaiting new catalysts for growth.

Economic Overview

The latest PMI data for September indicates that the UK economy is experiencing a slowdown, with the composite PMI falling to 51.7 from 52.5 in August. In contrast, the Eurozone's composite PMI rose to 53.1, driven by strong performance in the French and German service sectors. Despite the overall expansion, input price inflation has surged, returning to levels seen in June, which raises concerns for the Bank of England (BOE) regarding potential rate hikes.

OECD's Stance on BOE Rate Policy

Interestingly, the OECD has suggested that the BOE can maintain its current interest rate of 3.75% without further hikes, arguing that existing policy is sufficiently tight. This perspective has led to a recovery in UK bonds, with yields decreasing, which has subsequently weakened the British pound against the dollar.

Oil Market Dynamics

After experiencing its worst losing streak in a year, oil prices are stabilizing below $100 per barrel. Brent crude has seen a slight increase, aided by easing geopolitical tensions, which has positively influenced market sentiment.

Geopolitical Developments

Recent discussions between US and Iranian officials have been described as "very productive," although the path to a peace agreement remains uncertain. The ongoing conflict continues to impact market dynamics, particularly in the oil sector.

Stock Market Outlook

As oil prices stabilize, stock markets are showing limited upward movement. Nasdaq futures indicate a slightly lower opening, while the S&P 500 remains flat. Investors are looking for new drivers to propel the next phase of the US tech rally, with geopolitical issues remaining a central concern for market participants.

Conclusion

The current economic landscape suggests a cautious approach from the BOE regarding interest rates, with external factors influencing domestic economic conditions. The interplay between geopolitical developments and market responses will be crucial in shaping future economic forecasts.