- The Bank of England’s Monetary Policy Committee (MPC) is expected to keep interest rates at 3.75% tomorrow.
- The MPC is likely to keep adopting a ‘wait and see’ approach to setting rates, holding off on a hike or cut until we see concrete evidence of how the war is affecting the UK.
- Inflation has been below expectations by the Bank and most forecasters.
- The latest inflation data showed price growth dipped to 2.6% in the year to June 2026, down 0.2 percentage points from May.
- Unemployment fell slightly to 4.9% in the three months to June.
When will interest rates fall further? | Is the UK heading for stagflation? | MPC meeting dates | UK inflation forecast |
What should you expect from tomorrow’s MPC meeting?
Most experts agree that the MPC is most likely to hold interest rates at 3.75% tomorrow as the impact of the Iran war on the UK economy is still uncertain.
The current economic data is inconclusive about the long-term impact of the Iran war on the UK. Although inflation figures have been lower than expected so far, inflation is still forecast to rise in the final quarter of the year.
This makes it very difficult to justify lowering interest rates, as a cut would likely mean fuel a rise in inflation, when it is already forecast to increase..
On the other hand, raising interest rates presents its own challenges. A rate hike would hamper economic activity as borrowing becomes more expensive.
With the lack of conclusive economic evidence about how the UK is being affected by the Iran war, the Bank of England believes a ‘wait and see’ approach is the best one. The MPC is awaiting concrete data with which they can confidently assess the impact of interest rate changes before they bring any in.
This is why most experts believe the MPC will hold interest rates at 3.75% tomorrow – there isn’t enough data to justify a rate hike or cut at the moment.
Where have interest rates gone recently?
In the last six years, interest rates have gone from being as low as 0.1% to as high as 5.25%. Much of this period is dominated by the covid-19 pandemic and its consequences.
When the pandemic first hit, the MPC decided to push rates down to 0.1% to help stimulate economic activity.
Then, when the economy opened back up and the cost of living crisis began to be felt, interest rates were repeatedly hiked to combat rising inflation.
More recently, the Bank of England started to cut interest rates. Between August 2024 and December 2025, the MPC voted to cut interest rates six times, each time by 0.25 percentage points.
This gradually brought the Bank rate down to 3.75% in the last MPC meeting of 2025.
At the end of 2025, most experts believed that interest rates would be brought down by another 0.5 percentage points by the end of 2026, settling at around 3.25%.
However, the Iran war made the MPC change course. Since the war began on 28 February, the MPC has kept rates on ice at 3.75%, adopting a “wait and see” approach to future rate movements.
What is the Monetary Policy Committee (MPC) and what happens at their meetings?
The Monetary Policy Committee (MPC) is a group of nine experts appointed by the Bank of England responsible for setting interest rates.
The committee is made up of five senior Bank of England staffers and four external experts who are directly appointed by the chancellor.
The MPC members from the Bank include governor Andrew Bailey, deputy governors Dave Ramsden, Clare Lombardelli, Sarah Breeden, and the Bank’s chief economist Huw Pill.
The external experts are selected to ensure the Bank benefits from outside expertise from academia and industry. They include Alan Taylor, Catherine L Mann, Megan Greene, and Swati Dhingra.
A representative from the Treasury is also present. They are allowed to speak about policy ideas, but are not allowed to vote.
The MPC meets every six weeks to vote on whether to cut, hold, or raise interest rates and each vote has equal weight. The governor of the Bank votes last and has the deciding vote in the case of a tie.
Interest rate decisions are usually announced on a Thursday, though the meeting itself typically takes place on the day before the announcement.
At their last meeting, the MPC voted to hold rates at 3.75%, with the motion passing by seven votes to two.
