United Kingdom: Central Bank holds rates in July
Latest decision: On 30 July, 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 amid volatile energy prices. A weak labor market and softer-than-expected June inflation likely persuaded the Bank there was no need for an immediate rate hike to curb price pressures.
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. Monetary easing is projected for 2027.
Panelist insight: ING’s James Smith said:
“Ultimately, as we’ve argued throughout the crisis, 4% inflation is probably an important line in the sand for the Bank. It argued last summer that when inflation surpasses that level, it is statistically more likely to be consistent with second-round effects and a longer-lasting bout of price pressure. We’re not there yet; we think inflation is set to peak to around 3.5% on the current path of energy prices. The upshot is that unless the situation in the Middle East gets particularly dire, we think the Bank will continue to keep rates on hold through 2026, before cutting rates twice from next spring.”