Base rate decision - The Independent

The MPC is expected to hold the Bank Rate steady at 3.75% this week, but unlike June's 7-2 vote, I expect a 6-3 vote, pointing towards a quarter-point rise in the autumn after Brent oil breached $100 a barrel last week for the first time since May. Last week's inflation data showed a drop to 2.6%, its lowest level since March 2025, but that's likely as good as it gets: recent oil volatility will feed into domestic utility caps, sticky services inflation, and elevated wage demands. Hawkish dissenters are increasingly worried lingering energy shocks could unanchor household and business inflation expectations. Unless labour market softness accelerates fast enough to cool underlying price pressures, the MPC may be forced into a precautionary hike before year-end to safeguard its 2% target.

A hold this week is a formality, but don't mistake that for calm inside the MPC, the hawkish camp has doubled from one dissenter in April to two in June, and that's the number that actually matters. The real trigger is services inflation, stuck at 3.7% and refusing to budge, layered on top of Middle East driven energy costs, because that combination is what flips a cautious majority into a hiking one. My money's on September or November for the first move.

The Bank of England continues to hold the base rate as rate setters take extreme caution and sit on the fence when it comes to decisions, clearly showing they are worried about the potential outcome of increasing the base rate due to the US-Iran war.

We need to treat the next few months cautiously, as we are still walking on eggshells with this conflict, as peace is quickly overshadowed by an attack, which raises the tension. It only takes one wrong move to make costs spiral out of control.

Inflation is currently rising and falling at rates lower than people expected since the war began. However, an upward inflation trend may be influenced by fuel rises and the effects of the blockade of the Strait of Hormuz could lead to major action if it approaches anywhere near 4%, which would be double the Bank of England’s 2% target.

The newly formed government is taking action to counter this, but it doesn’t feel like enough to outweigh any impact from the political tension overseas.