Bank of England holds rates at 3.75% as energy-driven inflation clouds outlook

With inflation expected to remain above target through the remainder of 2026, and uncertainty around the duration and impact of the Middle East energy shock, the Bank of England’s Monetary Policy Committee (MPC) held interest rates once more at 3.75% today. The decision came as an 8/1 split, with 1 member voting to raise rates.

Chris Helyar, Partner in LCP’s investment team, commented: “The MPC’s decision to hold rates at 3.75% is effectively an extension of its ‘hawkish pause’ as it assesses the evolving impact of the energy shock. Although inflation remains above target at 3.3%, a relatively weak overall economic outlook reduces the likelihood of a spillover to wider pricing pressures, at least in the short term. This reduces the immediate need to tighten policy further, despite the inflation backdrop."

He added: “However, the Committee faces a delicate challenge. Having previously unsettled markets with its somewhat hawkish commentary following last time’s meeting, it sought this time to balance softening its near-term guidance while preserving the option for a rate increase later this year. But with the danger of second-round inflation effects an obvious concern, the path for rates remains highly reliant on incoming data. The MPC will not want to overreact before the duration and potential impact of higher energy prices become clearer.”