The Bank of England kept its key interest rate unchanged at 3.75% for the fifth time this year on Thursday, opting to hold steady as renewed conflict in Iran drove oil prices higher and stoked fresh concerns about inflation.
The bank’s monetary policy committee voted 6-3 in favour of maintaining the rate, in line with the expectations of most economists. Policymakers have held borrowing costs at that level since December, following four rate cuts across 2025.
The split decision underscored growing tensions within central banks worldwide over how to respond to stubbornly elevated inflation while weighing the risk that the war in Iran could trigger another wave of price increases.
Consumer price inflation in the United Kingdom slowed to 2.6% in the 12 months through June, down from 2.8% the previous month, the Office for National Statistics reported. While the decline was steeper than economists had forecast, inflation remained above the bank’s 2% target for a 21st consecutive month.
The bigger-than-expected easing gave policymakers some breathing space to assess the economic fallout from the renewed fighting in the Middle East.
That fallout has been felt most acutely in energy markets. Renewed attacks involving the United States and Iran raised fears of continued disruption to shipping through the Strait of Hormuz, a corridor through which roughly a fifth of all globally traded crude oil and natural gas once passed in peacetime.
Brent crude, the international benchmark, surged past $100 a barrel on July 23 from less than $71 three weeks earlier after a ceasefire between the United States and Iran broke down. It traded at about $92 a barrel on Thursday.
The move mirrors the cautious stance the bank has adopted in recent months, having previously held rates steady amid mounting global uncertainty earlier in the year.
The decision came a day after the U.S. Federal Reserve kept its own key rate in a range of 3.5% to 3.75%. Fed Chairman Kevin Warsh said the central bank “will not hesitate to act” to keep inflation under control.
Some analysts now expect the Bank of England to remain on hold well into 2027 as it navigates the competing pressures of a softening domestic price outlook and the inflationary threat posed by volatile energy costs.
The bank’s next policy decisions are expected to hinge on whether the conflict in Iran escalates further and how quickly oil prices stabilise in the months ahead.