Why is the Bank of England expected to hold interest rates at 3.75% in its upcoming decision?

The Bank of England is expected to hold rates at 3.75% because inflation is proving less threatening than feared, energy costs are falling amid hopes for an end to the Middle East conflict, and a sharp drop in oil prices—triggered by a new ceasefire in the Gulf—has raised the possibility that inflation will peak well below even the BOE’s most benign scenario. Although Chief Economist Huw Pill and external member Megan Greene are expected to vote for a hike to prevent energy-driven inflation from becoming embedded, the majority of the Monetary Policy Committee (MPC) remains dovish due to lingering concerns about labor market slack and weak demand.

What does the BOE mean by an 'active' hold, and how is it affecting households and firms?

The BOE’s 'active' hold means it is maintaining its policy rate unchanged while allowing tighter financial conditions—such as higher mortgage and credit costs—to restrict demand in place of raising rates. By removing the prospect of rate cuts and keeping market expectations tilted toward a potential hike, the MPC has effectively engineered an impact equivalent to three quarter-point rate increases since early February. As a result, households and firms are feeling financial pressure, though market conditions have recently eased, with swap rates falling and 10-year gilt yields dropping to a two-month low of 4.75%.

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