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The Bank of England (BoE) kept its benchmark interest rate unchanged at 3.75 per cent on Thursday, choosing a cautious path as policymakers weighed persistent inflation risks from higher energy costs against signs of weakness in the UK economy.
The decision, widely expected by economists, saw the central bank’s Monetary Policy Committee (MPC) vote 7-2 in favour of holding rates steady. Chief Economist Huw Pill and external member Megan Greene supported a 25-basis-point rate increase, arguing that tighter policy was needed to keep inflation expectations under control.
The rate pause comes as the UK economy faces renewed price pressures following months of elevated energy costs linked to the US-Iran conflict. Although recent peace negotiations between Washington and Tehran have raised hopes of easing tensions and stabilising oil supplies, the BoE warned that previous energy price spikes are still feeding into the economy.
“Whatever happens in the future, the higher energy prices of the past four months mean there’s already some inflationary pressure in the pipeline,” BoE Governor Andrew Bailey said after the decision.
The central bank expects inflation to climb above 3.25 per cent in the final quarter of 2026, compared with 2.8 per cent in May, as energy-related costs continue to impact households and businesses. However, the latest projection marks an improvement from earlier scenarios that suggested inflation could approach 3.6-3.7 per cent.
The UK, which relies heavily on imported energy, remains vulnerable to fluctuations in global oil and gas markets. Policymakers said it was too early to conclude that inflation risks had faded, even after hopes grew that the reopening of the Strait of Hormuz could ease pressure on energy supplies.
At the same time, economic growth remains fragile. Recent data showed the UK economy contracted by 0.1 per cent in April, although the BoE slightly upgraded its underlying growth estimate to 0.2 per cent per quarter, compared with its earlier forecast of 0.1 per cent.
The BoE’s cautious stance differs from other major central banks. The European Central Bank and Bank of Japan have already raised rates in response to renewed inflation concerns, while the US Federal Reserve has indicated that borrowing costs may rise later this year.
For now, the Bank of England appears committed to an “active hold” strategy — keeping rates steady while monitoring whether energy-driven inflation becomes a longer-lasting problem for the British economy.
