The Bank of England has maintained the base interest rate at 3.75%, though it issued a firm warning that hikes are looming. The primary driver for this hawkish shift is the ongoing conflict in Iran, which continues to exert significant inflationary pressure on the UK economy.
The Committee’s Stance
The Monetary Policy Committee (MPC) reached a near-unanimous 8-1 decision to keep rates steady. The lone dissenter was Chief Economist Huw Pill, who advocated for an immediate increase to 4%.
Despite the hold, the Bank’s official language turned aggressive, suggesting that “forceful” action may be required soon. Governor Andrew Bailey highlighted the extreme difficulty in forecasting the economic outlook, citing the massive volatility in energy markets triggered by the war.
The Bank’s Three Economic Forecasts
To navigate this uncertainty, the Bank has outlined three potential paths for the UK economy based on varying energy price outcomes:
| Scenario | Energy Market Outlook | Projected Inflation (CPI) | Potential Rate Action |
| Scenario A | Prices retreat quickly | Peaks at 3.6% this year; drops below 3% by late next year. | Minimal intervention required. |
| Scenario B | Slow price decline | Reaches 3.7% and stays elevated for a prolonged period. | Likely steady increases. |
| Scenario C | Oil remains >$120/barrel | Peaks at 6.2% in early 2027. | Aggressive hikes, potentially reaching 5.5%. |
GBP is trading steady against both EUR and USD in the Friday morning session, taken advantages of a more hawkish tone from BoE. GBP has reached its highest levels against both pairs since end of March.
GBP/EUR 1.1575 GBP/USD 1.3594 GBP/AED 4.9947
GBP/AUD 1.8899 GBP/CHF 1.0617 GBP/CAD 1.8461
GBP/NZD 2.3068 EUR/USD 1.1730 GBP/ZAR 22.7335