BOE Expected to Hold Rates Amid Resilient UK Economy

The Bank of England is expected to hold its key interest rate at 3.75% for the remainder of 2026, according to a majority of economists in a Reuters poll. This view has persisted since late February, when the U.S.-Israeli conflict with Iran began. The UK economy has shown resilience, with limited signs that higher energy costs are spilling over into the broader economy.

The Bank's own forecasts expect inflation to exceed 3% later this year. Nearly 90% of economists polled (56 of 64) expect no change in rates this year, up from 83% last month. Six predicted a hike, and two a cut. Crude oil prices remain about 25% above pre-war levels as the Strait of Hormuz stays closed.

Morgan Stanley's chief UK economist commented that the data aligns with the Bank's view of a loose labour market, acting as a barrier to second-round effects from the energy shock. This allows the core of the MPC to signal that the anticipated inflation overshoot from fuel and gas prices is unlikely to extend beyond the policy-relevant horizon.