The Bank of England has kept its benchmark interest rate at 4.25%, but hinted that a cut could be on the horizon as early as August, amid growing signs of a weakened UK economy and rising global risks.
While Governor Andrew Bailey acknowledged that inflation is now on a gradual downward path, he warned that the world remains “highly unpredictable”, with escalating geopolitical tensions—particularly in the Middle East—threatening to derail the UK’s fragile economic recovery.
“In the UK we are seeing signs of softening in the labour market,” Bailey said. “We will be looking carefully at the extent to which those signs feed through to consumer price inflation.”
The Bank’s Monetary Policy Committee (MPC) said it remained “sensitive” to developments in the Israel-Iran conflict, which has driven oil prices up by 26% and gas prices by 11% since the MPC’s last meeting in May. Further spikes in energy prices could reignite inflation and complicate decisions around future rate cuts.
The decision to hold interest rates came despite inflation remaining above the Bank’s 2% target and at its highest level in over a year. While some on the MPC are reportedly pushing for an earlier cut, the majority opted to wait, citing a complex mix of domestic and international pressures.
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