Bank of England’s latest decision on base rate

Base rate held at 3.75% as Bank of England weighs energy price uncertainty

The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 6-3 to maintain the base rate at 3.75% at its July meeting⁽¹⁾. Three members voted to increase Bank Rate by 0.25 percentage points to 4%.

In its latest Monetary Policy Summary, the MPC highlighted that in response to events in the Middle East, crude and refined energy prices have remained volatile and higher than pre-conflict levels. Monetary policy is being set to ensure the 2% inflation target is achieved sustainably.

CPI inflation has fallen to 2.6% since the MPC’s previous meeting but is expected to rise again later this year as higher energy prices feed through. The Committee suggested there has been little evidence of material second-round effects in price and wage-setting.

It concluded that there remains scope for the general inflation outlook to change materially as events in the Middle East unfold.

Dr David Crosthwaite, chief economist at BCIS, said: ‘Wider economy inflation still looks fairly benign despite the ongoing conflict in the Middle East so, as widely predicted, the Bank of England’s Monetary Policy Committee has held the base rate at 3.75%.

‘Of growing concern is the state of the wider economy with GDP growth flatlining, wage growth slowing and the unemployment rate rising. The Bank is remaining understandably cautious although in my opinion, the economy needs some stimulus.

‘A base rate hold by the Bank of England means borrowing costs for construction and development loans remain stable. However, because rates are not being cut, the industry continues to face relatively high capital expenses and as a result, subdued client demand for new construction.

‘Further, given the current uncertainty surrounding the new Prime Minister’s fiscal agenda, which likely won’t be clarified until the Autumn Budget, we can expect demand growth in the sector to remain muted.’

The risks associated with the future path of energy prices was a key topic of discussion at the latest Committee meeting. Members agreed these risks remained skewed to the upside, though most expected the effects of past disinflation to continue limiting inflation persistence over the medium term.

The Bank of England’s latest Monetary Policy Report⁽²⁾ also forecasts that business investment will soften over the coming quarters. Although investment grew by 0.9% in the first quarter of 2026, weaker business confidence and higher borrowing costs are expected to weigh on future investment decisions.

The latest outlook for construction

The Bank of England’s July Agents’ summary⁽³⁾ paints a subdued picture for construction, with geopolitical uncertainty, rising costs and weak confidence continuing to weigh on activity despite pockets of resilience.

Contacts reported healthy pipelines for public sector, defence and major infrastructure spend but cautioned that many schemes may take time to materialise.

The housing market is a particular area of weakness. Developers expect conditions to remain challenging and can only maintain prices via increased incentives and generous part-exchange offers. Even if confidence improves, contacts expect a three-to-six-month delay before any recovery feeds through to on-site activity.

Buyer and seller confidence also remains fragile. Housing transactions are taking longer to complete, mortgage enquiries from first-time buyers remain subdued and contacts believe any meaningful recovery later this year will depend on greater economic certainty and lower mortgage rates.

Commercial property presents a mixed picture. Contacts suggested demand remains strongest for grade A office space in city centres, but activity across the wider market is muted.

Data centres continue to stand out as one of the sector’s brightest spots, with investment driven by demand for AI and cloud computing services. However, constrained electricity capacity, lengthy grid connection times and planning restrictions are pushing up construction costs and slowing delivery.

Elsewhere, manufacturers supplying the construction sector reported weak demand and reduced capacity. Rising prices for energy-intensive materials, including plastics, metals, insulation products, steelwork and bricks, continue to squeeze margins. Although many manufacturers feel pressure to increase prices, subdued demand is limiting their ability to pass on higher costs.

The report also points to tighter financing conditions. Banks are becoming increasingly selective in their lending, with a preference for larger businesses. Appetite for lending to construction and hospitality firms has weakened, leaving many businesses more reliant on second tier funding.

Employment pressures have eased slightly, with contacts reporting modest spare capacity in parts of the construction sector as weaker and more inconsistent demand continues to restrain recruitment and wage growth.

Overall, the Bank’s intelligence suggests construction is likely to remain under pressure over the coming quarters, with geopolitical uncertainty, steel import quotas and persistent cost pressures continuing to weigh on confidence and investment.

The Monetary Policy Committee will announce its next interest rate decision on 17 September 2026.

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

^{(2) Bank of England – Monetary Policy Report – July 2026 – here}

^{(3) Bank of England – Agents’ summary of business conditions – July 2026 – here}