The Bank of England is widely expected to keep its base interest rate steady at 3.75 percent when its Monetary Policy Committee (MPC) meets this Thursday. The decision comes amid recent easing in inflation, balanced against growing uncertainty stemming from escalating tensions in the Middle East.
Economists from institutions including Oxford Economics, Nomura, and RSM UK anticipate a majority vote—in some cases predicted as seven to two—in favor of maintaining the current rate. The MPC’s upcoming meeting will also include refreshed economic forecasts that reflect recent developments.
Data from the Office for National Statistics showed that the UK’s consumer price index (CPI) inflation fell to a 15-month low of 2.6 percent in June. This slowdown was aided by decreasing food and fuel prices, providing some relief to policymakers who use interest rate adjustments to manage inflation. However, the Bank of England has previously projected inflation to rise again later this year, reaching around 3.25 percent, driven primarily by higher energy costs feeding into household bills from July onward.
Recent hostilities in the Middle East, marked by the end of a ceasefire between US-Israeli and Iranian forces, have injected fresh uncertainty into the economic outlook. The resulting conflict has pushed oil prices above $100 per barrel—the highest since May—with energy costs considered a key factor influencing inflation trends.
Thomas Pugh, chief economist at RSM UK, highlighted that oil price fluctuations will likely be a major determinant of the Bank’s interest rate decisions over the coming year. He suggested that if oil prices stay near $100 through the summer, the MPC might consider a rate hike as early as September, potentially followed by an additional increase in the winter. Conversely, a return to peace and a subsequent drop in oil prices could prompt the Bank to hold rates steady and possibly initiate rate cuts in 2027, citing a weakening labor market and a deteriorating economic outlook.
The Middle East conflict also has implications for the UK’s economic growth prospects. After a modest GDP rebound of 0.1 percent in May, the intensifying regional instability may dampen growth prospects in the near term.
Governor Andrew Bailey is expected to address how the renewed conflict has shaped the Bank’s inflation outlook and its approach to future monetary policy decisions during the committee meeting or in subsequent communications.
Overall, while the MPC appears poised to maintain the current interest rate amid easing inflation, ongoing geopolitical developments and energy market volatility remain key factors to watch in shaping the United Kingdom’s economic trajectory.