Key Takeaways
- The Bank of England is expected to hold interest rates at 3.75% at the MPC’s June 18 meeting.
- The decision comes after the UK economy shrunk in April as the Iran war impact started to weigh on growth.
- Experts diverge on whether hikes will be needed at future meetings to combat the effects of the Iran war on inflation.
The Bank of England is set to hold off on a potential rate hike at its June 18 meeting as the impact of the Iran war continues to dominate the attention of policymakers.
Monetary Policy Committee members will opt to hold rates at 3.75%, according to FactSet consensus.
Interest rate expectations have swung wildly since the outbreak of the conflict, with futures markets pricing in up to four interest rate hikes at the height of the uncertainty in March. Two rate cuts had been anticipated this year, before the start of the war.
As it stands, no hikes are fully priced in for the rest of the year but the outlook is far from certain, with the impact of the energy supply chain disruption yet to fully filter through to the economy.
Instead, investors are likely to focus on the voting split and the post-meeting comments from MPC members for insight on the Bank’s thinking.
“We expect the Bank to keep rates on hold, but the main question is how many dissent and vote for a hike,” says ING developed market economist James Smith, who expects a 7-2 vote in favor of a hold. BOE chief economist Huw Pill is expected to advocate for a rise in rates to 4%, Smith adds, and could be joined by three other MPC members. That would lead to a precarious 5-4 split on the nine-strong committee, with just one member required to swing the vote.
MPC members will have a further inflation print to digest before they vote on Thursday, with the Office for National Statistics releasing May’s Consumer Prices Index on June 17.
UK Inflation Expected to Rise
Inflation eased to 2.8% in April, down from 3.3% despite surging energy prices in the wake of the US-Iran war.
However, experts warn April’s inflation slowdown is likely to be an outlier. The global surge in energy prices has been masked so far by the energy price cap, which was set prior to the outbreak of the war at the end of February. Energy bills are set to rise when the cap next resets in July. A survey of economists by Bloomberg has CPI at 3% for May.
Rate-setters will also be weighing up the impact of a potential hike on economic growth, after the economy contracted 0.1% in April. Year over year, however, the economy has grown 1.2%.
“Conditions will undoubtedly worsen in the coming months, as the full effects of the Iran conflict feed through, but for now the UK economy is relatively resilient, and that should be enough to sate investors’ concerns,” says Morningstar chief European markets strategist Michael Field.
He adds that a hike will put economic growth under further pressure, but the feeling for now is that an upward move in interest rates would be temporary. “This means that investors should be able to deal with some pain in the coming months, provided it’s temporary.”
Will the Bank of England Follow the ECB and Hike Rates This Summer?
On June 11, the ECB became the first major central bank to raise interest rates in response to inflationary pressures from the Iran war.
However, AJ Bell’s head of financial analysis Danni Hewson says the Bank of England is unlikely to follow the ECB’s lead given recent macro data.
“Even if next Wednesday’s inflation data shows the anticipated uptick in prices, a sluggish economy, a weak labor market and a boatload of uncertainty are expected to persuade all but the most hawkish members that the best move is no move at all—despite the ECB’s decision to take early action,” she says.
MPC members are expected to leave the door open to possible hikes at future meetings.
Bank of America economists Sonali Punhani and Ruben Segura-Cayuela argue multiple rate hikes are still on the table, likely in July and September. They expect a pause at Thursday’s MPC meeting.
“Risks are tilted toward delays but we are concerned that the more the BoE delays, the greater the risks are that market pricing for hikes reduces, undoing some of the tightening of the curve which is currently doing the work for them,” they say.
“But we do see some merit in the argument for a delay to September when higher inflation outturns get released. Moreover, a lasting deal which meaningfully reduces oil prices sustainably or labor market worsening materially would increase the risks of a look-through scenario.”
Key Bank of England Interest Rate Decision Dates
- June 18, 2026
- July 30, 2026
- Sep. 17, 2026
- Nov. 5, 2026
- Dec. 17, 2026
