The Bank of England is widely expected to maintain its base interest rate at 3.75% as concerns over persistent inflation persist. The Monetary Policy Committee (MPC) is scheduled to announce its decision on Thursday, June 18. Many economists predict that policymakers will vote to hold the rate steady until the economic impact of the Iran conflict on inflation and output becomes clearer.
Expert Predictions
Fergus Jimenez-England, an associate economist at the National Institute of Economic and Social Research (NIESR), stated that Threadneedle Street would leave rates unchanged next week. He noted: "While underlying economic activity has softened, the more salient concern for the Bank will be sticky price inflation coming from elevated inflation expectations and lingering concerns over wage growth."
Inflation Data
Inflation, measured by the Consumer Prices Index (CPI), rose by 2.8% in the 12 months to April, down from 3.3% in the year to March, according to the Office for National Statistics (ONS). The next inflation announcement, covering May, is due on Wednesday, June 17.
Economic Growth Concerns
Experts believe that after a surprisingly strong start to the year—with GDP growing by 0.6% in the first quarter—economic growth will gradually slow for the remainder of 2026. The ONS reported on Friday, June 12, that GDP contracted by 0.1% in April, a sharp pullback from 0.3% growth in March and 0.4% in February. The services sector drove the contraction, with consumer-facing services dropping by 0.5%. NIESR now expects growth of 0.2% in the second quarter.
Impact of Middle East Tensions
Surging fuel and energy costs triggered by the war in the Middle East are expected to deal a sharp blow to the UK economy. Samuel Edwards, Head of Client Portfolio Management at global financial services firm Ebury, said hopes of a sustained economic rebound have been dealt a setback by the latest GDP figures. He added: "Businesses are contending with a difficult combination of higher employment costs, elevated taxes, and ongoing global trade uncertainty. At the same time, revived tensions in the Middle East are creating fresh risks through energy markets, adding to cost pressures and increasing volatility across the global economy."
Political Uncertainty
Edwards also highlighted that recent political turmoil in the UK is adding a further layer of uncertainty at a time when businesses are already facing tough decisions around investment and growth.
Market Reactions
Samuel Fuller, Director of Financial Markets Online, commented that despite April's negative growth figure, the data does not indicate an economy heading for hibernation. He said: "This will afford the Bank of England’s rate-setters more freedom to focus on inflation, rather than failing growth. As a result, the stakes for next Wednesday’s CPI data have risen sharply. If it comes in as hot as feared, the Bank could raise the UK’s base rate as early as Thursday."
Global Central Bank Actions
In Europe, the European Central Bank (ECB) raised its benchmark rate to 2.25% from 2% on Thursday, becoming the first major central bank to increase rates in response to the Iran war. Policymakers worldwide, including new US Federal Reserve Chairman Kevin Warsh, are grappling with how to confront inflation fueled by higher fuel prices. The ECB's move precedes rate-setting meetings next week not only at the BoE but also at the US Federal Reserve and the Bank of Japan.
Oil Prices
International benchmark Brent crude was trading at around £69 ($93) per barrel on Thursday, June 11, up from approximately £54 ($73) on the eve of the Iran war.
