Hold fire! The Bank of England kept its interest rate unchanged at 3.75% as expected, but warned of persistent upside risks to inflation.

The Bank of England held its base rate steady on Thursday, but clearly signaled that it stands ready to tighten monetary policy if persistently high energy prices trigger broad and sustained inflationary pressures. This stance aligns with the Federal Reserve’s decision announced the same day. The Bank’s Monetary Policy Committee (MPC) voted to maintain the base rate at 3.75%, a level unchanged since December last year. Bank of England Governor Andrew Bailey stated: "Our responsibility is to ensure any rise in inflation remains temporary." Three of the nine MPC members voted in favor of raising the base rate to 4%, reflecting heightened concern among some officials about the risk of second-round inflation effects. The pound edged up 0.08% following the announcement, trading at USD 1.3376. Felix Feather, economist at Aberdeen, remarked: "This pause by the Bank of England is slightly more hawkish than anticipated." Widening divergence: Three members advocated raising rates to 4% Of the nine MPC members, Megan Greene, Huw Pill, and Catherine Mann voted for a 25-basis-point increase to 4%, while the remaining six voted to hold. Greene noted that UK inflation has exceeded the target for approximately five consecutive years, and that a second chokepoint in energy supply routes—this time in the Red Sea—coupled with AI hardware supply-chain constraints, is imposing additional supply-side pressure on markets. She stated: "Acting pre-emptively with a rate hike could reduce the likelihood of second-round inflation taking root." Pill emphasized the "profound uncertainty" surrounding the outlook for energy prices, noting that this uncertainty "could persist for an extended and indeterminate period," rendering fine-tuned monetary policy adjustments perilous. He explicitly stated that raising rates now would "send a clear and unambiguous signal to markets that we are both willing and able to respond to inflationary risks emanating from Gulf-region developments."

Data dovish, market hawkish: The Bank of England faces a test of policy signaling on Thursday.

Interest-rate futures markets are firmly pricing in a Bank of England rate hike in November. The Bank of England will announce its interest-rate decision, meeting minutes, and latest economic forecasts on Thursday, followed by a press conference with Governor Bailey. Most economists surveyed by Reuters expect the Monetary Policy Committee to vote 7–2 to hold rates steady—and to keep them unchanged for the remainder of the year. Earlier, UK CPI for June fell to a 15-month low, while private-sector wage growth hit its weakest level since 2020. The newly elected Prime Minister Andy Burnham’s government has prioritized tackling the cost-of-living crisis, announcing the abolition of the value-added tax (VAT) on household electricity bills. Anna Titareva, economist at UBS, estimates this measure will exert downward pressure on inflation of approximately 0.1 percentage point. Titareva explicitly bets on rate cuts: "The next policy move will be a cut—in February and April 2027." Although fundamentals offer almost no rationale supporting a Bank of England rate hike, Wednesday’s interest-rate futures data pointed to a 25-basis-point hike in November and another in March 2027. This meeting coincides with the Federal Reserve’s July decision—which rattled markets with three dissenting votes in favor of hiking—and Chair Waller’s expression of "zero tolerance" toward inflation. A global hawkish mood has thus narrowed the Bank of England’s policy decision window. CPI and wages weaken in tandem; fiscal relief intensifies Falling domestic prices and labor costs together form the core justification for the Bank of England’s decision to hold rates steady. June CPI dropped to 2.6%, the lowest in 15 months; private-sector wage growth—a sticky indicator closely watched by the Bank—slipped to 2.9%, the weakest since 2020, indicating continued cooling in labor-market overheating risks. Fiscal support further expands policy space. Abolishing VAT on household electricity bills is the Burnham government’s flagship cost-of-living initiative since taking office. Building on this, the Bank of England has lowered its forecast for peak 2024 inflation—from 3.6%–3.7% in April—to just above 3.25% under two of its three scenario assumptions regarding energy prices and inflation persistence. Nonetheless, UK inflation has run above the Bank’s 2% target for most of the past five years, and the MPC is closely monitoring whether wage negotiations scheduled for late this year—and extending into 2027—could reignite upward pressure on pay demands. Most committee members currently judge that, against a backdrop of weakening labor-market conditions, the current interest-rate level is already sufficient to drive inflation gradually lower. Clash between economist consensus and futures pricing Reuters’ survey shows that most economists expect the Bank’s Monetary Policy Committee to vote 7–2 to maintain the base rate at 3.75%, with no changes for the rest of the year.

Bank of England Keeps Rates Steady Despite Oil and Gas Price Rebound

Jul 27, 2026

The Bank of England maintains interest rates at 3.75% despite oil prices exceeding $100 per barrel, citing lower-than-expected UK inflation. Analysts warn energy prices could still drive future rate hikes.

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