The Bank of England's Monetary Policy Committee (MPC) has voted to keep the benchmark interest rate at 3.75%, marking the fifth consecutive meeting without a change. This decision comes as the central bank navigates significant uncertainty in oil and gas prices, heavily influenced by the ongoing Middle East conflict. Governor Andrew Bailey and the majority of the MPC are adopting a wait-and-see approach, with a new set of economic forecasts expected to be released alongside the decision.
While the majority of economists polled by Bloomberg anticipated rates to remain steady, some MPC members, including Chief Economist Huw Pill, Megan Greene, and Catherine Mann, are expected to have advocated for a rate hike to counter potential second-round inflation effects. Despite these dissenting voices, the MPC largely believes that a tepid economic environment and already elevated real-world borrowing costs are sufficient to contain inflation risks, such as increased wage demands and price mark-ups by companies. The Bank signalled that it stands ready to act if inflation deviates from its 2% target.
Looking ahead, financial markets anticipate a rate hike in the autumn, with odds of a September increase around 65% and almost two quarter-point increases priced in by year-end. This contrasts with some economists who forecast no further changes this year, or even rate cuts in early 2027. The BoE also plans to publish an analysis on quantitative tightening, with market participants expecting a decision in September on unwinding its government debt portfolio. There are calls to potentially slow down or halt the sale of long-dated debt, given that 30-year gilt yields are near a 28-year high.
