Bank Rate maintained at 3.75 percent amid split vote
The Bank of England's Monetary Policy Committee voted 7–2 to maintain Bank Rate at 3.75 percent. Two members dissented, preferring a 25 basis point increase to 4 percent.
Divided vote on persistent inflation risks
The Monetary Policy Committee (MPC) voted by a 7–2 majority to maintain Bank Rate at 3.75 percent.
Two members favored a 25 basis point increase to 4 percent.
Global energy prices have fallen since the previous meeting, but remain volatile and above pre-conflict levels, with their full impact on the UK economy still uncertain.
CPI inflation has decreased to 2.8 percent, though it is projected to rise later this year due to the pass-through of higher energy costs.
The MPC noted the increased risk of material second-round effects on price and wage-setting if elevated energy prices persist.
However, a loosening labour market and signs of a weakening economy are expected to help contain inflationary pressures.
Interest rates for households and businesses remain elevated, contributing to future inflation reduction.
The Committee will continue to monitor geopolitical developments and stands ready to adjust policy to ensure inflation returns sustainably to the 2 percent target.
Global volatility, domestic tightening
Global energy prices, including Brent crude and UK wholesale gas, fell significantly following news of a Middle East peace deal, averaging around $79 per barrel and 100 pence per therm.
Despite this, prices remain elevated compared to pre-conflict levels, with the Committee noting partial mitigants like strategic oil reserve releases.
Financial conditions tightened, with UK two-year OIS rates 70 basis points above pre-war levels, leading to higher mortgage and corporate bond yields.
The June Market Participants Survey indicated expectations for Bank Rate to remain unchanged for the year ahead, contrasting with an upward-sloping UK short-term interest rate curve.
UK GDP increased by 0.6 percent in Q1 2026, though underlying momentum was subdued, with monthly GDP falling by 0.1 percent in April.
The labour market showed gradual loosening, with unemployment at 4.9 percent and declining vacancies.
Divided on a tightrope
The 7-2 vote underscores the MPC's internal divisions regarding the appropriate policy path amidst persistent uncertainty.
While falling energy prices offer some relief, the committee remains wary of embedded inflation, balancing this against signs of a weakening economy.
This cautious 'wait and see' approach risks delaying necessary action if inflation proves stickier than anticipated, potentially prolonging economic adjustment.