Bank of England Holds Base Rate at 3.75% as Middle East Energy Shock Lifts Inflation to 2.8%

The Bank of England (BoE) kept its key Bank Rate unchanged at 3.75% following its Monetary Policy Committee (MPC) meeting on June 18, 2026, a decision widely anticipated by economists. A Reuters poll of 65 economists had unanimously expected the hold, though there was no consensus on what would follow. The base rate has now held at 3.75% since December 2025, the level it reached after a series of cuts through 2024 and into early 2025.

The central challenge facing the MPC is the resurgence of inflation. UK CPI inflation has risen to 2.8%, above the Bank's 2% target, after having been expected to reach 2% in spring 2026 before the outbreak of war in Iran and the broader Middle East. The conflict has disrupted the transportation and supply of oil and gas, pushing up household motor fuel costs and utility bills. The Bank warned that while prices have fallen since the initial spike, the war makes future energy price movements difficult to predict, and it expects inflation to rise again as energy increases have knock-on effects on business costs and wage demands.

The MPC's voting pattern in recent meetings reflects growing internal tension. At the April 30 meeting, the committee voted 8-1 to hold, with one member dissenting in favor of a 25-basis-point increase to 4% — the first vote for a rate hike since the tightening cycle ended in summer 2023. This marked a hawkish shift from the unanimous 9-0 hold in March. The Bank's latest Monetary Policy Report set out scenarios in which CPI inflation could reach 3.1% in Q2, 3.3% in Q3, and rise somewhat further in Q4 before easing back toward target.

For UK borrowers, the hold comes as a relief — particularly for those on tracker mortgages, who will not see immediate repayment increases. However, the outlook remains highly uncertain. Interest rate forecasts have swung dramatically since the conflict began, with markets at one point pricing in as many as four rate hikes in 2026. As of mid-June, no increases were fully priced in for the year, though nearly 40% of economists surveyed predicted at least one hike. The Bank's next decision is scheduled for July 30, 2026.