Key Takeaways
- The Bank of England has held interest rates at 3.75% for the fourth meeting in a row.
- Seven of the nine members voted to hold, with two opting for a hike to 4%.
- Many economists now expect the BoE’s next move to be a cut after May’s inflation and unemployment data came in below expectations.
The Bank of England has held interest rates at 3.75% for the fourth consecutive meeting, with seven of the nine Monetary Policy Committee members voting in favor of a hold and two favoring a hike to 4%. While the UK‘s central bank did not commit to future rate increases, it forecast a rise in inflation in 2026 because of the energy shock triggered by the Middle East war.
The rate hold had been expected following a more positive week for economic data—as well as the signing of the US-Iran peace deal—which appears to have dampened expectations of an interest rate hike in the coming months. Tuesday’s inflation release covering May came in lower than expected at 2.8%. The surprise data was then followed by an unexpected fall in unemployment to 4.9%, reducing the chances of an interest rate hike.
Ed Hutchings, head of rates at Aviva Investors, says the decision was expected, but uncertainty remains after two MPC members voted to hike.
“Recent inflation and employment data should allow for the BoE to have a little more time to see how both the events in the Middle East develop and any spillovers this might have. However ... the Committee will certainly act if they feel the need and particularly so if inflation begins creeping higher and, critically, inflation expectations too,” he says.
“If so, we will likely see not just one 0.25% hike, but potentially one or two more than this.”
Michael Field, Morningstar’s chief European market strategist, says that rate rises are still a possibility.
“The ripple effects from the conflict in Iran are still unfolding, and further inflationary pressures cannot be ruled out. As such, the Bank of England’s hand may be forced when it comes to raising interest rates,” he says.
When Are the Bank of England’s Next Interest Rate Decisions?
- July 30, 2026
- Sep. 17, 2026
- Nov. 5, 2026
- Dec. 17, 2026
UK Inflation Expected to Rise
“CPI inflation has fallen to 2.8% since the previous meeting, although it is expected to rise later this year as the effects of higher energy prices continue to pass through,” the Bank said.
“Global energy prices have fallen since the previous meeting in response to events in the Middle East. But they remain higher than pre-conflict and have continued to be volatile. The impact of the energy shock on the UK economy remains uncertain,” it added.
Given this outlook, Bank of England’s chief economist Huw Pill was one of two MPC members who voted for a hike.
“Recognising the significant uncertainty that surrounds the UK inflation outlook, raising Bank Rate to 4% continues to be the most robust monetary policy response to the intensification of these risks,” he said.
Will the BoE Actually Cut Interest Rates This Year?
Rate-setters will be following the path of inflation closely in the coming months, with the energy price cap set to rise by 13% in July as a result of higher energy prices due to the Iran war. Still, oil and gas prices have slumped in recent days, which should feed through to lower fuel prices and energy bills in the coming months.
Political risk is another factor for markets to digest, with Manchester mayor Andy Burnham likely to challenge Keir Starmer’s leadership should he win the Makerfield by-election. Bond markets fear a more fiscally loose government should Burnham become prime minister.
With inflation coming in lower than expected in May, however, Berenberg senior economist Andrew Wishart expects the Bank of England to resume interest rate cuts by the end of the year as it shifts its priority to the labor market.
“With the full impact of higher energy prices and tighter financial conditions set to weigh on hiring over the summer, we expect the margin of slack in the labor market to widen from here, and cause private sector pay growth to decelerate further,” he says.
“The resulting slowdown in services price inflation and a favorable base effect from energy prices—a year on from the outbreak of the US-Iran war—risk the BoE undershooting its 2% target in 2027.”
Tomasz Wieladek, chief European macro economist at T. Rowe Price, says monetary policy in the UK appears to be working.
“Given the good news on inflation and the recent decline in oil prices, the MPC will likely conclude that no more hikes are necessary to stabilize inflation in the UK,” he says.
“Indeed, given the shock to the real economy, the next move is likely to be a cut.”
James Smith, developed markets economist at ING, expects this monetary loosening to resume next year.
“A Bank of England rate hike now looks unlikely barring a severe spike in energy prices through July, which isn’t our base case. We expect a prolonged pause and cuts to resume in 2027,” he says.
