Bank of England holds UK interest rate steady at 3.75% — but policymakers see upside inflation risk

Bank of England Holds UK Interest Rate Steady at 3.75% — Policymakers See Upside Inflation Risk

London, 30 July 2026 (UTC 11:32:09) – The Bank of England’s Monetary Policy Committee (MPC) voted unanimously to keep the Bank Rate at 3.75%, matching market expectations. While the decision reflects recent moderation in price growth, the committee warned that upside inflation risks remain, leaving the door open for future tightening.

Key Economic Indicators

• Headline inflation: 2.5% in June, down from 2.7% in the previous month, but still above the 2% target.
• Core services inflation: 3.1%, indicating persistent pressure in wages‑driven sectors.
• GDP growth: Annualised 0.3% in Q2 2026, a modest rebound from a 0.1% contraction in Q1.
• Unemployment: 4.2%, unchanged from the previous quarter, suggesting a tight labour market.

Why the Rate Was Held

The MPC highlighted three main reasons for pausing rate hikes:

• Recent data show a gradual easing of consumer‑price pressures, driven by lower energy costs and a slowdown in housing price growth.
• Economic activity remains fragile, with businesses reporting cautious investment plans amid global supply‑chain uncertainties.
• Financial stability concerns, including elevated household debt levels, would be exacerbated by further tightening.

Upside Inflation Risks

Despite the pause, policymakers flagged several factors that could push inflation higher:

• Potential resurgence in global commodity prices, especially oil and food, as geopolitical tensions ease and demand rebounds.
• Wage growth in the services sector remaining above 5% year‑on‑year, risking a wage‑price spiral.
• Continued supply‑chain bottlenecks in key manufacturing inputs, which could translate into higher consumer prices.

Outlook and Future Policy

“The Committee remains vigilant,” said MPC member Sarah Clarke. “If inflationary pressures re‑emerge, we stand ready to act decisively to bring inflation back to our 2% target.” The next policy meeting is scheduled for early September, where the MPC will reassess the data and decide whether a rate increase or a further hold is warranted.

Analysts expect markets to price in a modest probability of a 25‑basis‑point hike later in the year, while also monitoring the UK’s fiscal stance and external shocks that could influence the inflation trajectory.