On July 30, 2026, the Bank of England decided to keep the base interest rate at its previous level of 3.75%. The decision was made by a majority vote – six out of nine members of the Monetary Policy Committee voted for it. Three voted to raise the rate by 25 basis points.
The outcome was not surprising for the markets: inflation in Great Britain has significantly accelerated disinflation. According to June data, it fell to 2.6% year-on-year – that is, below the expectations of analysts who predicted 2.7%. Moreover, the slowdown was one of the fastest in recent months, primarily due to falling prices for transport and fuel against the backdrop of diplomatic efforts to resolve the situation in the Middle East.
However, the regulator remains cautious. Although current inflation has fallen, the conflict in the Middle East continues to keep energy prices high and volatile.
According to the Bank of England's own forecasts, inflation will rise to a peak of 3.2% by the end of 2026 before returning to the target level of 2% only in the medium term.
A temporary price spike could trigger secondary effects: companies, seeking to compensate for rising energy costs, may increase prices for goods and services. At the same time, households and small businesses are adopting a more cautious spending strategy – high mortgage and loan rates remain a heavy burden. In the labor market, the supply of labor exceeds demand, which weakens pressure on wage growth and helps to curb inflation "from below".
"Today we kept the Bank Rate at 3.75%. Inflation has fallen faster than we expected, but the conflict in the Middle East continues to mean high and volatile energy prices. This will lead to an increase in inflation later this year. Whatever happens, our task is to ensure that any rise in inflation is temporary and that it returns to our 2% target," explained Governor Andrew Bailey his decision.
Here lies a fundamental limitation of the central bank's toolkit: monetary policy is beyond the control of global energy prices. The Monetary Policy Committee cannot stop waves of external shocks, but it can ensure that the economy adapts to them in such a way that inflation does not become entrenched and does not distort long-term inflation expectations.
The next rate-setting meeting is scheduled for September 18, 2026. Until then, markets will closely monitor the dynamics of prices and economic data: will one-off inflation spikes become the start of a trend, or is this indeed a temporary phenomenon?
The Bank of England emphasizes: in the current conditions of heightened geopolitical risks, the rate is at approximately the level necessary to return inflation to target in the medium term. The situation remains under close observation, and readiness to act – depending on how events unfold.
