Rates Held As Inflation Risks Rise

“The geopolitical kaleidoscope has been dramatically shaken since the Bank last met to set the interest rate. Today’s decision to hold rates at 3.75% was therefore widely expected.  

“The ongoing conflict in Iran threatens to knock the recent progress on inflation off course. Our latest economic forecast suggests inflation is likely to reach 2.7% by Q4 2026, and we anticipate no further rate cuts in the near term. That’s concerning news for businesses looking to borrow as a springboard for investment and growth.  

“But much will depend on the duration of the conflict. Sustained rises in energy costs, as we are now seeing, will worsen the outlook on inflation dramatically. 

“At the same time the labour market faces pressure as continually rising labour costs weigh on hiring decisions. AI could also play a role – our new research, released today, points to a small number of deeper AI-using firms that are more likely to look at headcount reductions.  

“This could point towards a potential stagflation scenario. Government should be considering all options to soften the business impacts of inflation, particularly from the cost of energy.  

“The Chancellor was right to identify regional investment, AI and the EU reset as vital steps on the pathway to higher growth. The coming months must be about delivery in partnership with business.” 

More information on the Bank of England decision can be found here.