Bank of England set to hold rates at 3.75% as energy risks cloud outlook

The Bank of England is expected to leave its benchmark interest rate at 3.75 per cent when the Monetary Policy Committee announces its latest decision on Thursday 18 June, according to forecasters tracking the central bank. After a series of finely balanced votes, most economists now believe the committee will choose to wait rather than move in either direction.

The rate has stood at 3.75 per cent since the committee voted 8-1 to hold at its late-April meeting, when a single member pushed for an increase rather than a cut. That split was notable in itself: for much of the previous year, the dissenting voices on the committee had been arguing for looser policy, not tighter, and the shift signalled how the inflation debate has changed.

For households and businesses, the meeting carries real weight. Bank Rate feeds directly into the cost of mortgages, loans and overdrafts, and shapes the returns available on savings. A hold keeps the status quo in place, but the accompanying minutes and economic projections will be scrutinised for clues about where rates head next.

Inflation versus energy shocks

Policymakers face a delicate balancing act. UK inflation eased to 2.8 per cent in April, down from earlier in the year, which would ordinarily support looser policy. The cooling of price pressures over the past year had encouraged hopes that the long squeeze on living standards was finally easing and that rate cuts might follow.

But the disruption to oil and gas supplies linked to conflict in the Middle East has pushed energy prices higher, raising the risk that inflation climbs again later in 2026. Britain is unusually sensitive to gas prices because of the way its electricity market is structured, and a sustained rise in wholesale costs could feed through to household bills and the wider economy within months.

• Bank Rate currently sits at 3.75 per cent
• Inflation fell to 2.8 per cent in April
• Some economists now see a possible rise to 4 per cent later in the year
• Energy markets remain volatile amid Middle East tensions
• The Bank's 2 per cent inflation target remains the central reference point

Several analysts suggest the next move could be upward rather than downward, with a quarter-point rise pencilled in for the second half of the year should energy-driven price pressures persist. That marks a striking reversal from the consensus of a few months ago, when markets were pricing in a steady sequence of cuts.

The committee will also be mindful of the labour market, where signs of softening could argue against further tightening. A weakening jobs picture tends to cool wage growth and ease domestic inflation, giving policymakers room to be patient even if energy costs rise.

What it means for borrowers and savers

Mortgage borrowers and savers will be watching closely, as the decision shapes the cost of new fixed deals and the returns available on cash. Those coming to the end of fixed-rate mortgages face a different landscape from the ultra-low rates of the early part of the decade, and many will see their monthly payments rise when they remortgage.

Fixed mortgage rates are influenced not only by the current Bank Rate but by where markets expect rates to go. If investors conclude that the next move is more likely to be a rise, that expectation can push up the cost of new fixed deals even before the Bank acts. Conversely, savers stand to benefit from rates staying higher for longer, with the best easy-access and fixed-term accounts continuing to offer returns well above the lows of recent years.

“The committee is caught between an inflation rate that is broadly behaving and an energy shock that could undo months of progress. Holding buys time to see which force wins out.”

— An economist at a UK forecasting group

Background: a long road back to target

The Bank of England's task has been complicated since the inflationary surge that followed the pandemic and the energy crisis triggered by Russia's invasion of Ukraine. Bank Rate climbed sharply from near-zero to a peak well above 5 per cent before the committee felt confident enough to begin reducing it as inflation retreated towards the 2 per cent target.

The careful descent from those highs has been punctuated by repeated warnings that the journey back to target would not be smooth. The current episode, in which a fresh external shock threatens to revive inflation just as it appeared to be under control, is exactly the kind of setback policymakers have cautioned about. It also underscores how exposed the UK remains to events far beyond its borders.

What happens next

Attention will turn to the committee's updated forecasts and the tone of its commentary on energy risks. If the Bank signals that it views the recent price pressures as temporary, markets may continue to expect eventual cuts. If instead it flags a serious threat to the inflation outlook, expectations could shift further towards a possible rise.

Either way, the June meeting is unlikely to deliver dramatic action. The more important question is how the Bank frames the months ahead, and whether households should brace for borrowing costs that stay elevated, or even climb, well into the second half of the year.