Bank of England holds rate at 3.75% as energy shock clouds inflation outlook

The Bank of England on Thursday kept its policy rate unchanged at 3.75% as easing inflation offset growing price pressures from higher energy costs.

The Monetary Policy Committee voted 6-3 to maintain the rate, while three members supported a 25-basis-point increase to 4%.

The bank said annual consumer inflation had declined to 2.6% since its previous meeting but was expected to rise later this year as elevated crude oil and refined energy prices passed through to the economy.

Energy prices have remained volatile and above pre-conflict levels due to developments in the Middle East, creating uncertainty over the outlook for growth and inflation, it said.

The committee noted that there was little evidence so far of higher energy costs triggering broader increases in wages and prices, while recent data continued to show underlying disinflation.

However, it said inflation risks were tilted to the upside compared with projections in its July Monetary Policy Report and stressed that it was prepared to act if necessary to return inflation sustainably to its 2% target.

The annual inflation rate in the UK eased to 2.6% in June 2026 from 2.8% in May, slowing more than the expected fall to 2.7%.

This marked the lowest reading since March 2025, driven by moderating transport inflation (5.7% vs. 6.8% in May), with the largest downward contribution coming from motor fuels, particularly diesel.

The bank's next interest-rate decision is scheduled for Sept. 17.