The Bank of England has opted to hold interest rates at 3.75 per cent, a decision made by the Monetary Policy Committee (MPC) in a split 6-3 vote. This comes as the UK economy presented better-than-expected inflation results, with inflation easing to 2.6 per cent.
Despite the hold, policymakers cautioned that their “policy strategy could change” if inflation were to rise above expectations, particularly due to a potential re-escalation of conflict in the Middle East. Governor Andrew Bailey noted that while inflation has fallen faster than anticipated, the conflict continues to mean high and volatile energy prices, which he expects will cause inflation to rise again later this year.
The Bank forecasts inflation to remain around 3.2 per cent in early 2027 before returning to the target rate by the end of that year. Rate-setters also highlighted risks from renewed trade disruption in the Gulf region, global refinery disruptions, heatwave-related supplier problems, and AI hardware shortages, all of which could impact the UK's inflation trajectory.