Monetary Policy

The Bank of England Is Holding at 3.75% and the Pressure Is Only Going Up

The Peoples Economy

18 May 2026 — 1 min read

The Bank of England voted 8 to 1 to keep its benchmark Bank Rate unchanged at 3.75% in April 2026. One member voted to raise rates to 4%. That split says something about where the debate inside Threadneedle Street currently sits.

UK inflation has been moving in the wrong direction. CPI inflation climbed to 3.3% in the twelve months to March 2026, well above the Bank's 2% target. The Bank itself now expects inflation to move even higher later in the year as the effects of elevated energy prices pass through utility bills and transport costs. The Monetary Policy Committee has acknowledged that the conflict in the Middle East, and the resulting energy price surge, has created significant uncertainty for the UK inflation outlook.

Prior to the Middle East shock, the picture was actually improving. Domestic prices and wages had been showing consistent disinflation heading into early 2026, and rate cuts had been expected throughout the year. Those expectations have reversed. The market is not pricing any rate cuts for the rest of 2026, and some analysts now see a hike as a possibility if inflation data continues to deteriorate.

The challenge for MPC members is that the economy is not running hot. Growth is weak, the labor market is loosening, and tighter financial conditions since the conflict began are expected to dampen demand on their own. Raising rates aggressively into a slowing economy is a painful move that risks tipping households and businesses into greater difficulty. But failing to act risks letting inflation expectations become unanchored, which is a harder problem to fix.

The Bank's next decision is scheduled for June 18, 2026. By then, more data on energy price passthrough and wages will be available, and the MPC will be assessing whether those second-round effects, higher wages demanded in response to higher prices, are starting to materialize.

For UK mortgage holders on variable rates, the holding pattern means no immediate relief. For anyone with savings, high rates remain beneficial for now. The tension inside the Bank is likely to increase before the June meeting, not decrease.

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