Bank of England expected to hold interest rates at 3.75% as inflation stays below forecasts

The Bank of England is expected to leave interest rates unchanged when policymakers announce their latest decision on Thursday at 12:00 BST. Analysts widely expect the Monetary Policy Committee to keep the benchmark rate at 3.75% for a fourth consecutive meeting. The decision comes as officials continue to monitor the impact of events in the Middle East on energy prices and the wider inflation outlook.

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Official figures published on Wednesday showed UK inflation at 2.8% in the year to May, below what many had feared after the disruption caused by the US-Israel war with Iran. The Office for National Statistics said food price rises slowed to a 17-month low, while transport costs rose at the fastest rate over the year to May. Price increases in meat, dairy and vegetables also eased, reinforcing expectations that the central bank will not need to raise borrowing costs this week.

At its previous meeting in April, the Monetary Policy Committee signalled that rates could still rise later this year if inflationary pressures persisted. That warning followed what it described as a significant energy price shock linked to the Iran war. Since then, a reported US-Iran peace deal has eased some market fears, and oil prices have fallen close to their lowest level since the conflict began.

Traders have been pricing in the possibility that shipping through the Strait of Hormuz could resume more freely, which would help limit further energy cost spikes. The decision matters because interest rates remain the Bank of England's main tool for controlling inflation, and the UK is still above the official target. A hold would suggest policymakers believe the immediate risk from the Middle East has eased enough to avoid another increase for now.

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It would also reflect the balance the bank is trying to strike between slowing price rises and avoiding unnecessary pressure on households and businesses. There are still reasons for caution, however. Analysts say inflation is likely to rise again over the summer because higher wholesale energy costs have yet to feed fully into domestic gas and electricity bills.

Millions of households are also due to face a 13% increase in the Ofgem price cap in July, which could push inflation higher even if fuel markets remain calmer. That means the latest figures may not mark the end of the inflation problem, only a temporary pause in its acceleration. What remains unclear is how quickly the effects of lower oil prices and the Iran peace deal will reach UK consumers, and whether the Bank will see enough evidence to keep rates steady in the months ahead.

The next inflation readings and the impact of the July energy price cap will be closely watched. Policymakers will also be looking for signs that the recent easing in food prices can continue. For now, the expected decision points to a cautious wait-and-see approach rather than an immediate shift in policy.

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