Key Takeaways
- Expectations for the Bank of England’s next move on interest rates has swung wildly amid developments in the Iran war.
- In late March, markets suggested the BoE could increase interest rates up to four times this year in response to a war-driven spike in inflation.
- Following the ceasefire announcement, futures markets have scaled back hike expectations, though a single rise in June remains on the cards.
The outlook for the Bank of England’s next move on interest rates continues to be driven by the latest news out of the Iran war, with expectations for a series of hikes this year now pared back to a single rate rise.
The potential for even a single rate hike in 2026 marks a significant change. Coming into 2026, the Bank of England had been expected to cut interest rates through the course of the year. However, with oil surging in response to the Iran war, the inflation outlook has worsened, leading to expectations that the BoE will need to raise its key interest rate, the bank rate, from its current level of 3.75%.
Current Bank of England Rate Expectations
- Markets now expect rates to end 2026 around 4%
- June 18 meeting seen as most likely for a hike
- Earlier forecasts of multiple hikes have been scaled back
- Rate cuts expected at the start of 2026 are now off the table
As a net energy importer, the UK is prone to an inflationary supply shock resulting from surging oil and gas prices, despite the two-week ceasefire. The UK economy is expected to be the developed nation worst hit by the Middle East conflict, according to the Organisation for Economic Co-operation and Development.
The extent of the war’s impact on UK inflation will become clear in the next few months as soaring energy prices filter through into the ONS’s Consumer Prices Index releases.
Inflation data for March, the first since the outbreak of the war, will be published on April 22. Last week, US inflation data for March revealed the US Consumer Price Index had risen by a 3.3% annual rate.
Speculation on the Bank of England’s next move, ahead of the April 30 meeting, comes amid a setback in ceasefire negotiations and renewed spike in energy prices.
Early 2026 BoE Interest Rate Cut Expectations Vanish
Coming into 2026, the Bank of England had been expected to cut interest rates this year with inflation easing toward its 2% target and economic growth remaining weak.
After keeping interest rates at 3.75% in the first two MPC meetings of 2026, the outbreak of the war saw futures markets take expectations of interest rate cuts off the table.
Following the Bank of England’s March 19 meeting, Governor Andrew Bailey said the BoE “stands ready to act” to combat the impact of the war on inflation. (Bailey is scheduled to visit the US this week and his words will be scrutinized more closely than usual for signs of the Bank’s next moves.)
Futures markets responded to the messaging from the central bank by significantly raising interest rate expectations over the coming year to as many as four quarter point hikes.
In the wake of the April 8 two-week ceasefire, oil prices fell back, easing some inflation concerns. By April 2, expectations had been pared back to rate increases June and July. Now, markets expect rates to end the year at around 4%, with June the most likely meeting for a hike.
Rate Increase Seen at June BoE Meeting
Futures markets currently predict a 19% chance of a hike at the next meeting on April 30 and a 56% chance at the June 18 meeting.
Despite what futures markets are pricing in, investors suggest it is hard to see the Bank of England hiking after coming into the year expecting two interest rate cuts.
“Unlike the ECB, the Bank of England was primed and ready to lower rates had it not been for the Middle East conflict, so we find it difficult to grasp the idea of aggressive tightening should the war continue to de-escalate in the next few weeks,” says Matthew Ryan, head of market strategy at global financial services firm Ebury.
Morningstar international economist Grant Slade says that due the temporary nature of energy shocks on inflation, the odds of a rate hike are overstated. “We see fears of a rate hike by the BoE as overdone, given the tendency for central banks to ‘look-through’ energy shocks,” he says. “A presently weak labor market further mitigates the risk of rate hikes, in our view.”
However, as the conflict now appears likely to be more drawn out than markets had originally expected, Slade says that may place the one cut he expects in late 2026 at risk.
When Are the Next Bank of England Interest Rate Decisions?
With six MPC meetings to come this year, UK rate-setters will meet on the following dates in 2026:
- Thursday April 30.
- Thursday June 18.
- Thursday July 30.
- Thursday Sept. 17.
- Thursday Nov. 5.
- Thursday Dec. 17.
