Bank of England’s latest decision on base rate

Bank of England holds base rate over uncertain impact of energy shock

The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 7-2 to maintain the base rate at 3.75% at its June meeting⁽¹⁾. Two members voted to increase Bank Rate by 0.25 percentage points to 4%.

In its latest Monetary Policy Summary, the MPC highlighted that while global energy prices have fallen since its previous meeting, they have remained volatile and higher than the level seen before the start of conflict in the Middle East.

Those voting to hold Bank Rate also argued that the higher interest rates already facing households and businesses were continuing to reduce inflationary pressures over time, making it appropriate to leave Bank Rate unchanged at this meeting.

CPI inflation has fallen to 2.8% but is expected to rise again later this year as higher energy prices feed through. The Committee again emphasised the risk of second-round effects, where higher energy prices begin to influence wage and price-setting behaviour more broadly. However, it also noted that a loosening labour market and signs of a weakening economy may contain inflationary pressures.

In discussions, the Committee added that monetary policy takes time to feed through the economy, meaning any action taken at this meeting may not have prevented higher inflation in the coming months.

Instead, the MPC’s role is to set monetary policy in a way that prevents the effects of the recent energy shock from becoming embedded in broader inflationary pressures, ensuring inflation returns to the 2% target and remains there.

Dr David Crosthwaite, chief economist at BCIS, said: ‘Given the better-than-expected inflation numbers it was no surprise that the Bank of England voted to hold the base rate at 3.75%. Contrary to many predictions, the impacts of the Middle East conflict didn’t seem to be having a major effect on consumer price inflation in May, although there’s likely to be a lagged effect.

‘Economists had been expecting two rate increases this year but given the relatively poor performance of the wider economy and the unemployment rate, that position is now softening, which is potentially good news for construction.

‘A base rate hold by the Bank of England means borrowing costs for construction and development loans remain stable, supporting project financing. However, because rates are not being cut, the industry continues to face relatively high capital expenses and, as a result, cautious client demand for new developments. Until that position changes we can expect demand growth in the sector to remain subdued.’

The MPC’s next vote will be announced on 30 July 2026.

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^{(1) Bank of England – Bank Rate maintained at 3.75% – June 2026 Monetary Policy Summary and Minutes – here}