Key Takeaways

• Hold widely expected: All 62 economists polled by Reuters predict no change to the 3.75% Bank Rate at Thursday’s meeting.
• Vote split forecast: Analysts expect an 8-1 vote, with Chief Economist Huw Pill seen as the most likely dissenter favoring a hike.
• Bailey pushes back: The Governor has told investors that market bets on rate hikes this year are premature given war-related uncertainty.
• Inflation peaking concerns: BNP Paribas projects inflation could reach 4.5% in early 2027, up from 3.3% currently, prompting forecasts of two 2026 hikes.
• Growth downgraded: NIESR slashed its UK growth forecast to 0.9% for 2026 (from 1.4%) and 1.0% for 2027 (from 1.3%).
• Inflation back to target by 2028: NIESR doesn’t expect inflation to return to 2% until 2028.
• UK uniquely exposed: Heavy reliance on natural gas leaves Britain particularly vulnerable to the energy shock.
• G7 yield leader: UK government bond yields are now the highest among the Group of Seven economies.
• Starmer’s grip slipping: Political turbulence around the Prime Minister is fueling additional concerns over future fiscal plans.

The Bank of England appears poised to keep interest rates on hold on Thursday as it awaits clearer signals on the economic fallout from the Iran war, with investors on alert for any hints that higher borrowing costs may ultimately be required.

Like the U.S. Federal Reserve, which kept rates unchanged on Wednesday, and the European Central Bank, which is also widely expected to stand pat on Thursday, the BoE is grappling with whether the energy price shock poses a greater risk through renewed long-term inflationary pressure or by deepening an already fragile growth picture.

All 62 economists polled by Reuters predicted no change to Bank Rate from its current level of 3.75% at the conclusion of the Monetary Policy Committee’s April meeting.

Analysts Expect 8-1 ‘Hold’ Vote

After a unanimous 9-0 vote to hold rates by the MPC in March, most analysts expect an 8-1 split this week, with Chief Economist Huw Pill — who has flagged the risks of taking a “wait-and-see” stance — viewed as the most likely advocate of a rate hike.

By contrast, Governor Andrew Bailey has cautioned investors that their bets on rate hikes this year are premature, citing the considerable uncertainty surrounding the duration and ultimate impact of the war.

Andrew Wishart, senior UK economist at Berenberg, argued that the hikes already fully priced into financial markets were themselves dampening economic activity, thereby reducing the likelihood that the BoE will actually need to deliver a rate increase, at least in the immediate term.

“The BoE cannot prevent a mechanical increase in inflation due to higher petrol and utility bill prices,” he said. “Whether or not this triggers a renewed surge in wages and prices across the board will decide its response to the Iran war.”

Diverging Forecasts on the Path Ahead

While Wishart expects no rise in borrowing costs before a resumption of rate cuts later this year, analysts at BNP Paribas project two rate hikes in 2026 to counter a potential climb in inflation, which they see peaking at 4.5% in early next year — up from the current 3.3%.

Investors widely view Britain as particularly exposed to the surge in energy prices, given the country’s heavy reliance on natural gas.

Data released last week showed a sharp rise in input costs for firms, with companies lifting their price expectations for the next 12 months at a record pace.

Growth Concerns Mount

But there are also serious concerns about a sharp hit to economic growth from the war.

On Wednesday, the National Institute of Economic and Social Research (NIESR), a leading think tank, said Britain’s economy now looked set to grow by just 0.9% this year and 1% in 2027 — down from previous forecasts of 1.4% and 1.3% in February — while warning that inflation would not return to the BoE’s 2% target until 2028.

Beyond its outsized exposure to high gas prices, the British economy is also being weighed down by political uncertainty, with Prime Minister Keir Starmer struggling to maintain his grip on Downing Street and raising fresh questions about the country’s future fiscal trajectory.

British government bond yields are now the highest among the Group of Seven economies.

The BoE is set to publish its own first detailed forecasts since the start of the war on Thursday.

Given the high level of uncertainty surrounding those projections, economists will be watching closely for how individual MPC members position themselves around different economic scenarios — and the optimal paths for rates under each.

Bailey and other senior BoE officials are scheduled to hold a press conference at 1130 GMT, half an hour after the rate decision, meeting minutes, and new forecasts are released.