BoE Holds Base Rate as Inflation Concerns Trump Market Expectations

The Bank of England's Monetary Policy Committee voted 6-3 to maintain its base rate at 3.75%, defying market expectations for a cut.

Three members, concerned about second-round effects and inflation exceeding the 2% target for over five years, voted for a 0.25 percentage point increase to 4%. However, their concerns were outweighed by the impact of falling inflation from 3.7% in March to 2.6% in June.

The decision was widely expected after inflation fell below forecasted levels, but industry experts warn that it's not a signal for rate cuts. Instead, they caution that a base rate rise before the end of 2026 is possible due to rising swap rates and ongoing political uncertainty.

Daniela Hathorn from Capital.com noted that policymakers continue to face domestic price pressures and volatility in energy markets following the conflict in the Middle East. Charlie Ambler from Saltus added that the surge in oil prices poses a direct threat to the Bank's rate cutting cycle, with markets now pricing in two rate hikes by March 2027.