Key Takeaways
- The Bank of England has held interest rates for the fifth straight meeting.
- Futures markets still imply UK interest rates will rise this year, though some investors believe the BoE will hold rates because of weaker inflation and jobs data.
- A 6-3 voting split suggests there is growing consideration for a hike among the Monetary Policy Committee members.
The Bank of England has held interest rates steady at 3.75% for the fifth straight meeting despite uncertainty over the inflationary impact of the Iran war.
The decision had been expected, with FactSet consensus predicting the Monetary Policy Committee would vote to hold.
Instead, the voting split has become the focus, as three members were in favor of a hike to 4%. That’s up from two dissenting members at the BoE’s last meeting.
The Bank’s chief economist, Huw Pill, and MPC member Megan Greene both voted in favor of a rate hike at the last meeting on June 18. They were joined this time by Catherine Mann.
“The key change in the environment for my decision is the collapse of the US-Iran Memorandum of Understanding, the widening of the Middle East conflict, and the associated volatility in energy prices,” Mann said.
The MPC members in favor of a change said that a proactive hike would reduce the probability of “second-round” inflationary effects setting in, which is when workers demand higher wages to compensate for rising prices.
At the start of July, Pill said interest rates will need to rise this year to combat a likely increase in inflation from the Iran war.
“The decision not to raise rates makes sense,” says Michael Field, chief European markets strategist at Morningstar.
“At 3.75%, interest rates are already the highest of any major Western economy. Despite the bump in inflation at the onset of the Iran war, it remains below 2025 levels, when the bank was cutting rates,” he says.
Will Interest Rates Rise This Year?
Interest rate expectations have been volatile this year after the Iran war triggered a rise in energy prices. Though July’s meeting has left rates unchanged, futures markets currently expect at least one hike by the end of the year.
UK inflation has so far been shielded from much of the impact of the Iran war, with the latest reading for June coming in at 2.6%.
However, it remains above the Bank of England’s 2% target, and July’s CPI data will show the impact of the 13% rise in the government’s energy price cap, which reset at the start of the month. In its latest forecast, the BoE now expects inflation to move above 3% by the end of this year.
“For now, the ‘wait and see’ approach wins out,” adds Morningstar’s Field.
“If inflation remains at around today’s levels, then there is no immediate need to raise rates further, but the longer the Iran war drags on the bigger the likelihood of further rising inflation,” he says.
Despite the ongoing inflationary pressures, CG Asset Management portfolio manager Emma Moriarty says interest rate rises “look undeliverable” as markets await the Autumn Budget.
“This is due to the UK’s continued weak growth outlook and, increasingly, likely institutional reluctance to raise rates ahead of a fiscal announcement from the Burnham government,” she says.
When Are the Next UK Interest Rate Decisions?
- Sept. 17, 2026
- Nov. 5, 2026
- Dec. 17, 2026
Quilter’s head of fixed interest research, Richard Carter, also suggests Andy Burnham’s first budget could further complicate the path of inflation and interest rates.
“With cost-of-living measures expected to be front and center of this, as well as additional spending commitments looking likely, it may be the BoE sticks to its holding pattern before acting, offering a level of policy stability that is craved right now,” he says.
