United Kingdom: Central Bank holds rates in June
Latest decision: On 18 June, the Central Bank voted to keep the bank rate at 3.75%, following cuts of 150 basis points from August 2024 to December 2025.
Bank takes cautious approach: The Bank decided to take a wait-and-see approach to evaluate the impact of past monetary easing and the impact of the past rise in energy prices on inflation and GDP growth. A weakening labor market and soft underlying economic activity meant there was no need for an immediate rate hike to curb inflation that is currently running above the 2% target.
Rates likely to remain stable this year: The Central Bank said it “stands ready to act as necessary” to meet the target. Panelists have revised up their end-2026 bank rate forecasts considerably since end-February, with the Consensus for the rate to close the year around its current level. However, some panelists see rate cuts and some see hikes.
Panelist insight: On the outlook, Nomura analysts said:
“This does not feel like a Committee ‘on the edge’ – ready to pull the trigger on tighter policy at the slightest piece of stronger data. Rather, notwithstanding the geopolitical uncertainties the economy faces, this set of minutes gave the impression that the? majority of the MPC was comfortable with rates at their current level. As such, we remove our single 25bp rate hike from our profile but retain our two 25bp cuts in H2 2027, which would take policy back to a neutral setting by the end of our forecast horizon.”
ING’s James Smith concurred:
“There’s nothing in [the] 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 neutral-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.”