The Bank of England held rates steady at 3.75% as expected, but a surprise vote for a hike by one policymaker signals growing concern over Middle East tensions. Governor Bailey remains cautious, prioritizing inflation control while noting domestic inflation is stabilizing — aligning with the new PM’s cost-of-living agenda. Forecasts now show inflation peaking at 3.2% this year before falling below 2% by early 2028, with potential rate hikes still on the table in 2026 and 2027. Policymaker Mann cited escalating Middle East conflict as her key concern, warning of longer-term global risks. Meanwhile, the Bank also noted a modest yield boost from its balance sheet reduction, hinting it may slow down quantitative tightening ahead of its September review.
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