Bank of England holds rates, cites Iran war uncertainty
The Bank of England held at 3.75% as Iran-war energy shocks kept inflation worries alive. Lower oil prices helped, but officials still see consumer relief lagging.
The Bank of England kept borrowing costs on hold even as oil prices eased, warning that the war in Iran and the wider Middle East still posed a direct risk to household budgets. Policymakers left Bank Rate at 3.75% for a fourth straight meeting in a 7-2 vote, with two Monetary Policy Committee members backing a quarter-point rise. The central bank said inflation had fallen to 2.8% but could climb again this year as higher energy costs work through business prices, wages and consumer bills.
The message was that lower crude prices do not quickly translate into cheaper everyday costs. Andrew Bailey said recent falls in oil prices were “encouraging”, but he added that prices were still above their level before the war. The Bank said the conflict had disrupted energy transport and pushed up motor fuel and utility bills, underscoring the lag between a move in headline oil markets and the impact felt at the checkout.
The decision matched market expectations. A June 5-12 Reuters poll of 65 economists found every respondent expected the Bank to hold at 3.75% on June 18, while about 40% expected at least one rate increase later in 2026. The same poll projected UK inflation peaking at 3.6% in late 2026, well above the Bank’s 2% target.
The Bank’s caution came against a softer but still fragile economic backdrop. Official data showed the UK economy contracted by 0.1% in April 2026, the first monthly decline since August 2025. Reuters said the drop was partly tied to Iran-war-related disruption to services and entertainment, including cancellations of Gulf sporting events. At the same time, May inflation held at 2.8%, below forecasts, giving policymakers some room to wait before changing course.
The next Bank Rate decision is due on July 30, 2026. For now, the central bank is signaling that even if the geopolitical shock eases, the inflation hit will not disappear quickly, because energy costs still have to pass through supply chains and consumer prices before households see the effect.
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