The Bank of England (BOE) is widely expected to keep interest rates at 4.25% this week as policymakers weigh geopolitical risks, ongoing inflation and domestic economic data conflicts.
The Monetary Policy Committee (MPC) will announce its decision on Thursday, with the market betting that it will uphold its “gradual and prudent” approach to policy easing. Since August 2024, BOE has tripled due to stubborn inflation and flexible wage growth.
However, there have been differences within the committee. May’s meeting showed that consensus was even more broken, reducing expectations for faster slowdowns. Thereafter, a subsequent batch of weaker domestic data has recovered speculation that MPC may slow down its pace in reducing borrowing costs.
“This month’s Bank of England policy meeting should be a direct decision [to leave rates unchanged] When they come. “Nomura economist George Buckley said.
“By February next year, we continue to look for a terminal rate of 3.5% – i.e., three 25bp cuts were made at the monetary policy reporting meeting. We believe that settlements will be on the upper end of the neutral range. This is a cutting cycle that is faster than what the market sees.”
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Central banks face complex global and domestic backgrounds. The rise in oil prices following Israeli air strikes on Iran (BZ = F) has rekindled concerns about wider conflict in the Middle East, complicating trade policy-driven shifts by U.S. President Donald Trump.
Meanwhile, Sterling (gbpusd = x) has sharply strengthened against the dollar, complicating the inflation outlook.
in the country, the picture is still uncertain. The UK economy contracted 0.3% in April, reversing early growth. In the three months to April, wage growth slowed significantly and unemployment increased, raising questions about the potential strength of the labor market.
However, inflation remains a core issue. Initially, consumer price inflation rose to 3.5% in April, the highest in more than a year, up from 2.6% in March. The National Bureau of Statistics later modified the figure slightly down to 3.4%, after the figure found that the Transportation Bureau had provided its incorrect road tax data.
“Monetary policy seems to be in good condition, leaving the Bank of England to see how the economic situation and international political background develops,” said Investec economist Ellie Henderson. “Ultimately, this is a time of high uncertainty that requires a potentially agile response from the central bank, thus limiting any great vision.”
The next data for May will be released on June 18 (the bank starts a two-day meeting).
“If the inflation figures don’t have any surprises, interest rates will hold any surprises, and expect to cut twice this year, we’ll likely see rates drop again,” said Sarah Coles, personal finance columnist at Yahoo Finance UK and head of personal finance at Hargreaves Lansdown.
Paul Dales, chief economist at capital economics, said April’s GDP contraction “will not prompt the Bank of England to lower interest rates next Thursday. But it’s another news, pointing to another cut in August”.
Sanjay Raja, chief economist at Deutsche Bank, has a similar view: “We hope that the Monetary Policy Committee (MPC) will keep the bank interest rate unchanged at 4.25% on June 19. However, in our view, labour market concerns may increase. We believe that the focus of the labor market may bring additional risks to domestic risks in May of June.
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He added: “We insisted on lowering the three-point reduction rate this year (August, December, December, December) and lowered a final tax rate in February, reducing the bank interest rate to 3.25%.
Others are looking forward to summer moves, too. Ebury’s chief economist Enrique Diaz-Alvarez said: “In this context, the Bank of England is expected to maintain a steady pace this week, but there is no strong inflation report, and the MPC may indicate that the next cut may take place in the summer. This could be shown in the bank’s hawkish bias or voting mode with two or three officials’ votes.
ING analysts also marked August as the next move. “Unless next month’s data is a huge surprise, we think the latest disappointing work figures help consolidate the August drop. Remember that bank interest rates are still large on the 4.25% restricted territory, which gives banks enough range to lower it. We expect November to cut two further in November, and two more in 2026, reducing the final rate to 3.25%.
However, not all market participants believe Threadneedle Street will take action soon.
Read more: The UK economy shrank by 0.3% in April
“While the broader trajectory of interest rates remains down, the path forward now looks shallower than previously expected,” said Steve Matthews, director of liquidity investment at Canada Lifesaving Asset Management. “Market pricing suggests that the next move is unlikely to be before September, or later. In addition, uncertainty in U.S. tariffs and trade policy are creating a more cautious global backdrop, and no one wants to act too early.”
Throughout the Atlantic, everyone’s eyes turned to the U.S. Federal Reserve, which is widely expected to remain unchanged at interest rates for next week’s meeting. Investors will keep an eye on the latest economic forecasts, seeking clues about how policymakers have recently considered signs of economic softness and the level of concern about ongoing trade uncertainty, unresolved fiscal negotiations and the growing risk of conflict in the Middle East.
The Bank of England is scheduled to announce its latest interest rate decision at noon Thursday, June 19.
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