The Bank of England's Monetary Policy Committee has voted 6-3 to maintain Bank Rate at 3.75%.
The conflict in West Asia, and its impact on energy prices and the UK economy, remained the dominant source of uncertainty for the inflation outlook.
Three members voted to increase Bank Rate by 0.25 percentage points, to 4%. These members were concerned that second-round effects could be material, and thought it relevant that inflation had exceeded the 2% target for more than five years. For these members, uncertainty about how the conflict would evolve remained high, and so a "risk management strategy" was appropriate.
Despite the split vote, a hold was widely expected after inflation fell to a 15-month low of 2.6% in June, below economist forecasts.
However, an escalation in attacks in the Gulf, alongside the increase in the Ofgem price cap, threaten to push prices higher in the coming months.
As a result, industry experts have cautioned that today's hold is 'not a signal that rate cuts are back on the table', instead not ruling out a base rate rise before the end of 2026.
Daniela Hathorn, senior market analyst at Capital.com, commented: “While headline inflation has moderated over recent months, policymakers continue to face persistent domestic price pressures, particularly in services inflation and wage growth. Recent volatility in energy markets following the conflict in the Middle East has further complicated the outlook, increasing the risk that imported inflation could remain elevated even if underlying demand softens.
“Markets will therefore be paying close attention to the tone of the Monetary Policy Committee rather than the decision itself. Investors will want to know whether policymakers still see the next move as lower rates or whether higher oil prices and a resilient labour market are delaying that timeline. With UK inflation proving stickier than many other advanced economies, the BoE has less flexibility than some of its global peers to signal an easing cycle."
Charlie Ambler, co-chief investment officer at Saltus, said: "While comfort can be drawn from inflation falling to 2.6% in June, the Bank is right to be cautious as conflict in the Middle East escalates, Andy Burnham takes the helm as Prime Minister, and new fiscal policy direction remains uncertain.
“The surge in oil prices poses a direct threat to the Bank’s slow and steady rate cutting cycle. With markets now pricing in two rate hikes by March 2027, the impact of geopolitics on the trajectory of rates cannot be underestimated. While markets will be looking for reassurance amid this uncertain backdrop, any forward guidance will likely remain cautious."
Sarah Thompson, group financial services director at Mortgage Scout, added: "Today’s decision to hold the base rate at 3.75% reflects the fact that inflation has come in lower than the Bank of England expected. The latest figure of 2.6% is below the 2.7% many economists had forecast, driven largely by softer food and petrol prices. While that is still above the Bank’s 2% target, it has given the Monetary Policy Committee room to keep rates on hold this time round.
"However, this is not a signal that rate cuts are back on the table. The current inflation figure does not yet reflect the increase in the energy price cap due later this year, and the Bank has been clear that it expects inflation to tick back up as a result. At the same time, swap rates have risen in recent days amid ongoing political uncertainty, and several major lenders have already started to nudge their mortgage rates upwards in response – even ahead of today’s announcement.
"That combination of rising swap rates and a less certain inflation picture in the second half of the year means we would not rule out a base rate rise before the end of 2026. For borrowers, the message is clear: the window to secure today’s rates will not stay open indefinitely."
