Bank of England holds rate, warns inflation may rise
The Bank of England held its benchmark interest rate at 3.75 percent on Thursday and warned that inflation would rise again later this year because the US-Iran war was pushing up energy prices.
Governor Andrew Bailey said inflation had fallen faster than the bank expected, but added that the conflict in the Middle East meant energy prices remained high and volatile.
“That will cause inflation to rise again later this year,” Bailey said.
Three members of the Bank of England's monetary policy committee voted to raise the UK rate by 0.25 percentage points to 4 percent. Bailey joined the five remaining members in voting for no change for a fifth time in a row, according to minutes of the meeting.
The committee said it stood ready to act to ensure inflation meets the central bank's 2 percent target.
Britain's annual inflation rate fell to 2.6 percent in June as fuel prices eased after a short-lived ceasefire between the United States and Iran. AFP reported that the dip is expected to be temporary as fresh fighting in the Middle East this month pushed oil prices higher.
The Bank of England set out three scenarios for the British economy depending on how the conflict develops. Its central forecast projected inflation peaking at 3.2 percent toward the end of the year before easing slightly.
“There remains scope for the outlook to change materially as events in the Middle East unfold,” the bank said in its monetary policy summary.
The central bank said it expected economic growth to remain subdued this year and in early 2027. It forecast GDP growth of 1.1 percent in 2026 and 2027, an improvement on its April estimates.
In its most pessimistic scenario, in which tensions in the Middle East escalate, the Bank of England forecast that UK inflation could rise as high as 4.5 percent in 2027.
New UK Prime Minister Andy Burnham has vowed to ease cost-of-living pressure and announced measures including a tax cut on domestic electricity bills.
The Bank of England's decision came after the Federal Reserve held US interest rates steady on Wednesday, though some policymakers called for a hike to combat inflation.
Update
Three members of the Bank of England's monetary policy committee voted to raise the benchmark rate by 0.25 percentage points to 4 percent.
Andrew Bailey joined five other committee members in voting to keep the rate unchanged for a fifth consecutive time.
The Bank of England projected inflation to peak at 3.2 percent toward the end of the year before easing slightly in its central forecast.
In its most pessimistic scenario, the Bank of England forecast UK inflation could reach 4.5 percent in 2027 if Middle East tensions escalate.
The central bank forecast UK GDP growth of 1.1 percent in 2026 and 2027, an improvement from its April estimates.
The Bank of England said it expected economic growth to remain subdued this year and in early 2027.
Prime Minister Andy Burnham has announced measures including a tax cut on domestic electricity bills.
Source note: AFP news report published on 30 July 2026 at 11:51:20 UTC.
Update
The Bank of England warned that inflation would rise again later in the year because the US-Iran war was pushing up energy prices.
Governor Andrew Bailey said inflation had fallen faster than expected but that the Middle East conflict meant energy prices remained high and volatile.
Source note: AFP news report published on 30 July 2026 at 11:14:53 UTC.
Uncertainty notes
The Bank of England said the economic outlook could change materially depending on events in the Middle East.
The 4.5 percent inflation figure is a pessimistic scenario forecast, not the central forecast.
Source
AFP news report published on .