- The Bank of England’s Monetary Policy Committee (MPC) voted to keep interest rates at 3.75% today.
- The decision was in line with expectations from most experts.
- The MPC seems to be 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.
- The Bank estimates that inflation will be lower than their previous expectations in 2026.
- The latest inflation data showed prices rose by 2.8% in the year to May 2026, unchanged from April.
- Unemployment fell slightly to 4.9% in the three months to April.
When will interest rates fall further? | Is the UK heading for stagflation? | MPC meeting dates | UK inflation forecast |
Good afternoon and welcome to MoneyWeek’s live coverage of tomorrow’s (18 June) interest rates decision.
The Bank of England’s Monetary Policy Committee (MPC) will meet today to decide where to take interest rates, and the decision will be announced on Thursday.
Follow along for the latest commentary and analysis on the upcoming decision and the breaking news tomorrow afternoon.
What is the Monetary Policy Committee (MPC)?
The Monetary Policy Committee (MPC) is a group of nine experts who are responsible for setting interest rates.
The group is made up of five senior members of staff at the Bank of England, and four external experts who are there to make sure the MPC benefits from expertise outside the BoE. The committee is chaired by Andrew Bailey, the governor of the Bank.
They meet every six weeks and vote on whether to cut, hold, or raise interest rates. If there is a tie, then the Bank of England governor Andrew Bailey holds the deciding vote.
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 eight votes to one.
ONS: Inflation held steady at 2.8% in May
Inflation held at 2.8% in the 12 months to May, as the lowest food inflation in 17 months helped offset high transport prices, the latest figures from the Office for National Statistics (ONS) show.
The figure undershot expectations from many economists who expected inflation to rise.
Although inflation is lower than many had forecasted, it is still significantly above the Bank of England’s 2% target and many economists expect it to rise this year thanks to the economic disruption from the Iran war.
The largest upwards contributor to inflation in May was the transport sector, where inflation was 6.8% in the year to May. Price growth for airfares, vehicle taxes, and motor fuel costs pushed May’s overall inflation up by 0.29 percentage points.
Much of this was offset by surprisingly low food inflation, which was the lowest in May since December 2024. Food prices rose by 2.2% in the 12 months to May, pulling overall inflation down by 0.07 percentage points.
Other notable downwards contributions to the inflation rate came from the housing and household services, furniture, clothing, restaurant, and recreation sectors.
For more detail and analysis on today’s inflation figures, you can read our inflation live report from earlier today.
What’s the link between interest rates and inflation?
Inflation is one of the most important, though not the only, economic indicators used by the MPC to help them set interest rates.
This is because the Bank of England has a mandate to keep inflation at 2%, a level of price growth that economic consensus deems healthy for an economy.
Most Western central banks, like the European Central Bank (ECB) and the US’s Federal Reserve (Fed), have an inflation target of 2%.
The Bank of England can use monetary policy to help keep inflation at the target level. The most important of these levers is the moving of interest rates.
Broadly speaking, when inflation is too high, the MPC will raise interest rates, and when it is too low, it will lower them.
These are not the only two reasons why interest rates are moved. For example, rates might be lowered if economic growth is too slow in a bid to speed up the economy.
Where have interest rates gone in the last decade?
Interest rates are currently at 3.75%, the lowest they have been since February 2023.
Before 2022, rates had languished under 1% for the most part as low interest rates were used as a tool to help stimulate the economy following the 2008 financial crisis and during the covid-19 pandemic.
But high rates have been the norm since 2022, when energy prices exploded in the wake of the Russian invasion of Ukraine. This led to high inflation and the start of the cost of living crisis, which we are still feeling the effects of today.
In order to tame inflation, the Bank of England quickly and aggressively hiked rates, going from 0.5% in February 2022 to 5.25% in August 2023.
Rates have since been gradually lowered, with the bank rate going from 5.25% in July 2024 to 3.75% in December 2025, where they have stayed.
Before the Iran war, most economists expected the Bank to cut rates at least twice in 2026, but few now expect this to happen.
They now either expect rates to stay at 3.75% for the rest of the year, or potentially rise depending on how deep the inflationary shock from the war will be.
What should we expect from tomorrow’s interest rates announcement?
Most economists agree that an interest rate cut is incredibly unlikely tomorrow as global economic conditions make this a risky move. If rates are cut at a time when many expect inflation to rise, it could exacerbate the issue.
Instead, many experts are forecasting that the MPC will choose to hold interest rates at 3.75% for the fourth consecutive meeting.
Today’s inflation data bolsters the case for a hold, as it undershot the Bank’s projection by 0.4 percentage points, helping paint a rosier picture of price growth.
With inflation holding steady compared to the April 2026 figure, the possibility of a rate hike in tomorrow’s announcement also becomes more unlikely, though future hikes are not off the table yet.
Experts at Oxford Economics forecast a hold at tomorrow’s meeting, expecting the MPC to vote 7-2 in favour of a hold.
Edward Allenby, senior economist at Oxford Economics, said: “Although energy prices remain elevated, most MPC members don’t appear close to voting for tighter policy.
“Early warning signs of indirect and second-round effects remain benign, and most members have argued that the weakness in the economy means the risks around the medium-term inflation outlook are two-sided. But these members are still likely to signal that they remain open to rate rises if necessary.”
The economic backdrop to tomorrow's announcement
The economic backdrop to tomorrow’s MPC meeting is a mixed picture. While May’s inflation figures were much lower than most economists expected, the rest of the economic news is not quite so rosy.
The UK economy shrunk in April as the country started to feel the economic disruption from the Iran war, figures from the ONS showed last week.
The economy contracted by 0.1% in the month to April, the first time negative growth figures were seen since August 2025.
The contraction is a far cry from the more positive growth figures in the first quarter of 2026, which showed the economy grew by 0.6%, indicating that the Iran war disrupted the start of an economic recovery for the UK.
Negative growth is a big worry for policymakers as it means the country is getting poorer as a whole.
When periods of economic contraction are prolonged, the effect is worse as firms see revenues dwindle and start to lay off staff – if the economy shrinks for two consecutive quarters, it officially enters a recession.
We are not quite at that point yet, but depending on how the economy responds to the economic shocks coming, we could get closer.
The Bank of England also closely monitors the labour market to help inform their interest rates decision.
The latest figures show unemployment climbed to 5% in the three months to March, bringing joblessness to its highest level in almost six years.
Meanwhile, wage growth is slowing. In the three months to March, wages grew by just 3.4%, also the slowest rate in six years.
Although high unemployment and slow wage growth are bad for individuals, according to the orthodox view of economics, a soft labour market does act as a disinflationary pressure in the economy – if you are laid off, your income falls and so does your spending.
That means that a poor jobs market can help lower inflation, which can in turn help persuade the MPC to cut rates.
Why does conflict in the Middle East mean inflation in the UK?
The war in Iran has caused a significant global economic shock with trade being disrupted since 28 February as hostilities have made transporting goods through the region very risky.
The disruption has been particularly acute because the Strait of Hormuz, a narrow waterway between Iran and Oman through which around 20% of the world’s oil and gas is transported, has remained shut.
With such a large proportion of the world’s oil supply effectively stuck in the strait, oil prices have soared.
The average price of a barrel of Brent crude oil was around $70 before the start of the war, but once hostilities began prices became high and volatile. They peaked at around $114 a barrel in May, but hovered between $90 and $100 for the most part since February.
Following news that a peace deal had been reached between the US and Iran, prices plummeted as traders expect the Strait of Hormuz will reopen and allow the ships stuck there to continue on to their original destination.
But even if this peace deal is signed and comes into full effect, the economic consequences of the war will be felt for some time.
Though the oil supply is set to return to normal, the damage has already been done.
The price of oil impacts how much many everyday items cost. This includes more obvious things like petrol and diesel, but also goods you may not expect like crayons, plastic bags, and iPhones.
With prices being so high for four months, we can expect the hangover effects to last for the rest of the year and potentially spill into 2027. The hard work of restarting the whole process of oil production and distribution takes time.
An additional pain point for the UK from the war is energy prices. The closing of the Strait of Hormuz sent wholesale energy prices flying, and this will be reflected when the next price cap comes in on 1 July.
Millions of households in the UK will be shelling out around 13% more for their energy this summer, and prices are expected to remain broadly at this elevated level until at least 2027, according to most forecasts.
When will the interest rate decision be announced?
The Monetary Policy Committee’s (MPC) interest rates decision will be announced tomorrow (17 June) at 12pm.
Alongside the decision, the Bank will publish the minutes from the MPC meeting, where the committee’s thinking can be seen.
This document also has statements from each MPC member on why they voted the way they did.
Every other meeting, the Bank of England also publishes a Monetary Policy Report that sets out the economic analysis and inflation projections used by the MPC.
There will be no report published alongside the June meeting as one was published in April.
Thank you for following our live coverage of interest rates this afternoon. We will pause the blog for now, but will be back in the morning.
Make sure to come back to this page tomorrow to get the latest breaking news, analysis, and commentary on interest rates when the MPC announces their decision.
Good morning. Welcome back to our live coverage of today’s interest rates decision.
The Bank of England will announce whether rates are falling, rising, or staying where they are at 12pm.
While most economists think the bank rate will remain at 3.75%, there is still a small chance that rates will rise today.
Follow this page to get the news as soon as it's announced, as well as analysis and commentary.
ONS: Unemployment fell slightly to 4.9% in three months to April
Unemployment fell to 4.9% in the three months to April, down from a reading of 5% in the previous month, according to the latest figures from the Office for National Statistics (ONS).
Meanwhile, payrolls rose to 30.3 million in May, up slightly by around 2,000 compared to April.
The figures slightly undershot most expectations from economists, who largely anticipated joblessness to remain at 5%.
Liz McKeown, director of economic statistics at the ONS, said: “The labour market remained broadly stable in the latest quarter, with further softening evident in some numbers.”
The data indicates the jobs market may be strengthening. If this is the case, it would be good news for workers, but potentially mean the Bank of England will be more inclined to keep interest rates high to avoid the inflationary pressures that arise when the jobs market is strong.
The ONS also published provisional data for May, showing the number of vacancies in the UK was down by around 2.6% (19,000 jobs) in the period between March and May, the lowest level since April 2021.
McKeown said the fall in vacancies suggests “firms are becoming more cautious about taking on new staff”.
The provisional figures also showed payrolls rose to 30.3 million in May, up slightly by around 2,000 compared to April.
ONS: Wage growth remains at a near six year low
Public sector wages are growing far faster than those in the private sector, new data from the ONS shows, as overall earnings growth remains at its slowest level in almost six years.
Wages for the average worker in the UK grew by 3.4% in the year to April when excluding bonuses, remaining at the same level as the previous month. When including bonuses, this figure grows to 4.4%.
Liz McKeown, director of economic statistics at the ONS, said: “Regular wage growth in the private sector slowed to its lowest rate in five and a half years, though total earnings are growing faster because bonus payments in March and April are higher than a year ago, particularly in the financial sector.
“Public sector pay growth increased but is once again affected by the timing of pay awards varying this year.”
Public sector workers received the biggest pay bump in the period, with their average wages growing by a rapid 5.1%.
Private sector wages lagged far behind this figure, growing by just 2.9% overall in the same period. When excluding bonuses, earnings grew at their slowest rate since October 2020, during the height of the covid-19 pandemic.
Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales, said the latest labour market figures “point to a jobs market struggling under the strain of soaring energy bills and employment costs, with more firms limiting hiring and holding down pay, especially for younger workers”.
He said: “Weak wage growth offers a silver lining for rate-setters by raising hopes that any inflationary spillover from the Iran war will be limited, especially as rising unemployment will help keep pay settlements heading downwards.”
He added that the figures “seal the deal” on an interest rate hold today as rate-setters will be reassured that a soft labour market can help mitigate the inflationary shock from the Iran war.
Recap: What you should expect at 12pm
The MPC’s interest rates decision will be announced at 12pm today. We will be covering the result of the decision in this live report.
Most economists think the MPC will keep rates where they are at 3.75% for the fourth consecutive meeting.
They are likely to do this because of the economic shock that is coming from the Iran war. Analysts expect the war to push up inflation in the UK this year, although we are yet to see data that shows how deep the shock is.
While fuel prices are already high because of the war, and energy prices are set to rise from July onwards, overall inflation has been lower than expected in March and April, holding steady at 2.8%.
However, when the new energy price cap comes in in July, we can expect inflation to rise more significantly.
As the Bank of England has a mandate to keep inflation at 2%, they are highly unlikely to cut interest rates at a time like this, as doing so might exacerbate the problem.
While a hold is the most likely result, the MPC may decide to raise interest rates to help stave off inflation. However, a rate hike is not expected today as the MPC will likely wait and see before taking more drastic action.
Before the war, most experts thought the MPC would cut interest rates twice more in 2026, but most now think they will remain where they are for at least the rest of this year.
BREAKING: Interest rates held at 3.75%
Interest rates are unchanged at 3.75%, the Bank of England has announced.
The hold was widely anticipated by economists, as the Bank’s Monetary Policy Committee (MPC) wait to see how the shock from the Iran war will be reflected in economic data.
Interest rate hold passed by 7 votes to 2
The Monetary Policy Committee voted to hold rates at 3.75%, with seven members supporting the motion, and two members opposing it.
The two members who opposed the hold instead wanted rates to rise by 0.25 percentage points to 4%.
The members voting to raise interest rates were Huw Pill and Megan Greene.
Energy prices were a major concern for the MPC
The minutes of the MPC’s meeting show that the elevated level of global energy prices were a key concern for the committee when deciding where to take interest rates.
They acknowledged that wholesale energy prices have fallen since their previous meeting in April but noted that they still remain higher and more volatile than they were before the Iran war.
They added that the impact of the energy shock on the economy is still uncertain, with concrete data only set to become available in the coming months.
The minutes said: “Monetary policy cannot influence energy prices but is being set to ensure that the economic adjustment to them occurs in a way that achieves the 2% inflation target sustainably.”
Future interest rate decisions set to depend on scale of Iran shock
Where interest rates go next is uncertain and highly dependent on how the economy reacts to the shock from the Iran war, the minutes to the MPC’s meeting showed.
The Bank’s mandate to keep inflation at 2% will require different amounts of intervention from the MPC depending on the rate of inflation later this year.
The minutes show that a potential future rate hike is still on the cards despite more positive developments in the Middle East as the inflationary impact of the war is still set to get worse.
They said: “The policy stance required to achieve this [the 2% target] will depend on the scale and duration of the shock, and how it propagates through the economy.”
Economists at the Bank still expect inflation to accelerate later this year when the effects of higher energy prices pass through to consumers in July through the increased price cap. They are also closely monitoring second-round inflationary effects, which are typically worse the longer higher energy prices persist.
One economic indicator that helps the Bank justify avoiding a rate hike is the softening labour market, which could help “contain inflationary pressures.”
The minutes read: “The Committee will continue to monitor closely the situation in the Middle East and how its impact propagates through the economy. The Committee stands ready to act as necessary to ensure that CPI inflation remains on track to meet the 2% target in the medium term.”
Bank of England lowers its inflation expectations for 2026
Inflation is expected to remain just below 3% for most of the year, but briefly rise to “a little over” 3.25% in the fourth quarter of 2026, new estimates from the Bank show.
The new estimates are well below the Bank’s April forecasts which expected inflation to peak at 3.6% in their best-case scenario and over 4% in their worst-case scenario.
The downgrade in the Bank’s inflation expectations came after energy prices have fallen since the previous estimates were made, with significant drops coming after it looked like the Iran war was coming to a close.
Lower non-energy prices also helped the Bank revise their inflation forecast down.
BoE: Strong economic growth in Q1 is unlikely to be repeated in 2026
The UK’s strong economic performance in the first quarter of 2026 is unlikely to continue in the rest of the year, the Bank of England has said.
The minutes of the MPC’s meeting showed that this figure overstated overlying economic momentum, which has remained subdued, according to business surveys analysed by the Bank.
April’s GDP figures, which showed the economy shrank by 0.1%, are consistent with this.
Bank staff estimate that underlying GDP growth in Q1 was around 0.2%, and that the economy would continue growing at this rate in Q2.
Base rate held for four consecutive meetings
Today’s announcement that interest rates would stay at 3.75% is the fourth consecutive time the MPC has voted to keep rates where they are.
Compared to interest rates in the last 20 years, 3.75% is relatively high, especially considering rates had been near 0% for years following the 2008 financial crisis.
However, as inflation has remained persistently high since the 2022 energy crisis and the accompanying cost of living crisis, the bank rate has been high for some time. That means that 3.75% is actually the lowest since February 2022.
Bailey: We must tolerate above-target inflation to get back to target
In the minutes of the MPC’s meeting, Andrew Bailey, governor of the Bank of England, justified his vote to hold interest rates.
He argued that the marked fall in energy prices in recent days was a positive sign, especially considering the progress on US-Iran peace talks, but warned “the situation remains unpredictable, and there is clearly a risk that energy prices remain elevated for an extended duration”.
Bailey noted the labour market is showing signs of further softening and said there are further signs of demand weakness in the economy.
He added: “Our remit recognises that attempting to bring inflation back to the target too quickly may cause undesirable volatility in output.
“Given the context at present of softness in the real economy and uncertainty around the scale and duration of the shock to energy prices, tolerating temporarily above-target inflation as part of a return to target is an appropriate way to approach the trade-off, providing inflation expectations remain contained.”
He said that inflation and interest rates risks are on the upside, meaning it is more likely for the bank rate to rise than fall in the foreseeable future.
“I would respond promptly to any signals that an extended period of elevated energy prices could be leading to stronger possible second-round effects,” he added.
Why two MPC members voted to raise interest rates to 4%
While the majority of MPC members voted to keep interest rates held at 3.75%, there were two dissenting voices that wanted to hike rates.
These were Huw Pill, the Bank of England’s chief economist, and Megan Greene, an academic economist and external member of the MPC.
Greene voted to hike rates as she saw the risk of second-round inflationary effects as higher and more uncertain than other members of the committee. To deal with this, she called for the MPC to “pursue a risk management strategy!.
She said the risk of holding rates where they are and second-round effects being more extreme than expected is worse than hiking rates and these effects being as forecast.
She said: “These risks are asymmetric, so we should insure against the possibility of larger second-round effects until we have evidence to determine they are not materialising. A proactive hike now in bank rate should help anchor inflation expectations.”
Pill’s justification was similar, arguing that, with the inflationary outlook so uncertain, raising interest rates to 4% “continues to be the most robust monetary policy response to the intensification of these risks”.
“Global energy prices remain volatile, and elevated compared with their pre-hostilities level, despite the announcement of a new ceasefire. Even with a looser labour market, the risk that second-round effects will create greater intrinsic persistence in UK inflation remains.”
He added that moving the bank rate to 4% now would put monetary policy in a good position to address the uncertainties in the economy.
Deutsche Bank: Interest rates expected to be on “long hold”
Deutsche Bank has said that interest rates are set to stay at 3.75% for a long time, with a lower chance of a rate hike as the economic and geopolitical backdrop has become more favourable and given rise to a wider consensus within the MPC.
Sanjay Raja, the bank’s chief UK economist, said: “For the MPC, recent data outturns combined with an Iran/US deal has meant that the risks around second-round effects have receded. Indeed, while the MPC still sees upside risks to inflation, lower wage and price inflation has given the MPC more confidence that price pressures remain more contained for now.
“Put simply, despite an inevitable inflation wave, the MPC may be willing to tolerate and look through a temporary bump in price momentum.”
Raja added that today’s decision has also helped the MPC keep their options open in the summer, when we will start to see more concrete data about how the Iran war has affected the UK.
“Despite better data and a dramatic fall in energy prices, the MPC avoided sounding too dovish. Instead, it maintained its hawkish bias – keeping flexibility should there be any meaningful signs of indirect and/or second-round effects.
“While financial conditions have tightened since the war began, the MPC's decision today reflects the importance of maintaining some policy restriction in market pricing – allowing it to stick to its 'active hold' strategy.”
As for where interest rates will go next, Raja says the need to act swiftly has reduced as more favourable economic data than expected bought the MPC some extra time to assess the situation.
With that extra breathing space, Raja expects interest rates to stay at 3.75% for the rest of 2026 and adds that Deutsche Bank’s models still see the case for rate cuts in spring 2027.
What does today’s interest rates decision mean for your finances?
Decisions made at the Bank of England to cut, hike, or hold interest rates will affect your personal finances.
This is because the bank rate is the core interest rate in the UK, and is the rate of interest the BoE pays to commercial banks, building societies, and financial institutions that hold money with the central bank.
The bank rate is also the interest rate that the BoE charges on loans made to other financial institutions.
That means that when interest rates change at the BoE, the lending and savings rates offered by retail banks also tend to change.
This is why you may find that your mortgage rate is higher after the bank rate rises, or why you may find your savings are generating less interest when the bank rate falls.
According to data from Moneyfacts, its Average Savings Rate has risen to 3.57%, the highest point since May 2025. “Much of this change to fixed rates is down to speculation that interest rates will remain higher for longer,” said Rachel Springall, finance expert at Moneyfacts.
For more on how interest rates affect your finances, read our article.
MPC remains in ‘wait and see’ mode
Today’s decision to hold interest rates at 3.75% indicates that the MPC is continuing the ‘wait and see’ approach that they have used since the beginning of the Iran war, according to analysis from advisory firm Oxford Economics.
Multiple economic indicators have turned less inflationary in the last few days.
Oil and energy prices in particular are in a better place than any of the BoE’s potential scenarios outlined in their April Monetary Policy Report, with oil and gas futures trending down as the Iran war winds down.
Meanwhile, the labour market has continued to soften, which acts as a further disinflationary force in the economy.
Andrew Goodwin, chief UK economist at Oxford Economics, said that the majority of the MPC who voted to hold rates “appear to take the view that the most likely scenario is that a weak labour market and fragile demand will keep a lid on second-round effects via pay growth and margins. And leading indicators on the strength of those second-round effects will remain key to the MPC’s decision making”.
Like Deutsche Bank, Oxford Economics agree that we are probably going to see interest rates settle at 3.75% until at least next year before a potential cut in late 2027.
Goodwin said: “On balance, we can’t see any reason to change our call that Bank Rate will remain at 3.75% for the rest of this year. The majority of the committee appear content to sit back and see how events play out, and we don’t expect to see leading indicators showing evidence of growing second-round effects that might trigger a change of heart.”
Thank you for following our live coverage of today’s interest rates decision.
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