NEWS: BOE HOLDS BENCHMARK RATE AT 3.75% (AGAIN)
Updated: Aug 30
THE BOE HOLDS COURSE AT 3.75% WHILE MUTINY BREWS OVER THE CLOUDS AHEAD
On 18/06/2026 the Bank of England (BOE) held its benchmark base rate at 3.75% with a 7-2 vote from its Monetary Policy Committee (MCP). The dissent from the previous MCP vote 29/04/2026 grew with now 2 members calling for 1/4 point increase in rates to 4% arguing there was no ceasefire, against inflation.
MARKET REACTION:
GBP/USD: The pound fell against the dollar trading 0.5% weaker at $1.3225 the lowest since early April 26.
Gilt Yields: The 2 and 10 year yields declined modestly by around 2-3 basis points.
Equities: London's FTSE dropped a marginal 1%.
Traders: marginally pared bets on future rate hikes, fully pricing one quarter-point increase this year and an approximate 30% chance of a second.
Next Rate Decision: 30th July 2026.
The BoE MCP meets 8 times per year to consider the benchmark base rate. Thereafter, it publishes its MCP minutes and those arising from 18/06/2026 can be viewed by clicking here.
THE MUTINY GROWS
Chief Economist Huw Pill April's lone dissenter was joined by Megan Greene to vote for an immediate increase in the base rate to 4%. The mutineers expressed fear that the recent ceasefire between the USA and Iran was unlikely to hold and so provided only temporary relief to the underlying inflation.
Inflation currently stands at 2.8% above the BOE's 2% target, 64'000 jobs have been lost since the start of February 26, regular private-sector growth had fallen to its weakest in 5 years and while the underlying growth rate was 0.2% (which is impressive in Europe only,) UK GDP actually fell 0.1% in April.
THE OFFICIAL LINE
Despite the persistent inflation, rocketing insolvencies, spiralling energy costs, uncontrolled welfare and the little likelihood of the USA ceasefire holding; the BOE remained optimistic with its projections. The MCP lowered its estimate of peak inflation from 3.6% it had projected in April 26 to 3.25% this fourth quarter while leaving the rest of its guidance unchanged.
As for the domestic troubles; like the ECB, the BOE dumped these at the USA's doorstep. Specifically it noted:
"War in the middle east had disrupted the transportation and supply of energy, raising its price and pushing up households' motor fuel costs and utility bills; prices have fallen since the initial spike but the war makes future projection difficult.
Inflation has fallen to 2.8% but is expected to go up again as the energy price rises have their knock-on effects; higher bills could force businesses to increase their own prices to cover the cost; workers may ask for higher wages as their bills have gone up; the impact on the economy and inflation will depend on how long energy prices stay raised.
Demand for workers is not very high right now, so employers may feel less pressure to increase salaries; and interest rates are still higher than before the war broke out; this could contain the effects of the energy price rises and help reduce inflation over time.
Monetary policy cannot affect global energy prices; [the BOE's] job is to make sure that higher inflation does not persist and have long-lasting effects on the economy."
MARKET EXPECTATIONS
ING Think:
"There's nothing in today's decision that changes our mind that the next move is likely to be a rate cut in 2027. It feels like it would take a lot for the five more neutrial-to-dovish members of the nine-strong committee to vote for a hike, barring the Iran deal falling apart and energy prices moving materially higher."
You can read their original article by clicking here.
Bloomberg Economics:
"We doubt the central bank's tone will shift until its clear the worst of the inflation shock has passed. That means rate hikes can't be ruled out. But assuming the recent fall in oil prices sticks, we think the central bank will ultimately end up keeping rates steady through the course of 2026."
You can read their original article by clicking here.
