The Bank of England is likely to keep interest rates at 4.25%, weighing lower domestic inflation against rising oil prices and global uncertainty.
The Bank of England (BoE) is expected to keep its Bank Rate steady at 4.25% in its policy announcement on Thursday, 19 June 2025. The Monetary Policy Committee (MPC) is assessing signs of a weakening domestic economy alongside growing inflation risks, including a sharp rise in oil prices driven by escalating conflict in the Middle East.
Recent official data showed that UK inflation remained persistent at 3.4% in May, above the BoE’s 2% target. Services inflation, a key concern for the central bank, slowed during the month, while wage growth also decelerated.
However, food prices rose at the fastest pace since February 2024, and the broader economic outlook weakened, with April output falling by the most since 2023. The contraction has been attributed in part to the expiration of a tax incentive on home sales and the global effects of US trade tariffs.
Oil prices have risen sharply, with Brent crude increasing from around USD 60 to more than USD 77 per barrel due to concerns over supply disruptions resulting from the Israel-Iran conflict. This has raised fuel and shipping costs, adding inflationary pressure and increasing uncertainty for monetary policy.
Economists widely expect a 7-2 vote within the MPC in favour of maintaining the current rate. In its May meeting, the Committee voted 5-4 to cut the rate by 25 basis points, with divergent views among members about the pace and size of future adjustments.
Although financial markets and analysts anticipate a quarter-point rate cut in August, and potentially another by year-end, bringing the rate to 3.75%, the MPC is likely to retain its cautious stance. The central bank has indicated that any decisions on easing will follow a “gradual and careful” approach, especially amid geopolitical instability.
The BoE has matched the US Federal Reserve in cumulative rate reductions since mid-2024 but lags behind the European Central Bank, which lowered rates earlier this month following eurozone inflation falling back to its 2% goal. The Fed, which kept its own rate steady this week at 4.25%-4.50%, cited tariffs and inflation risks as reasons for holding.
Despite recent trade tensions, the UK may see limited impact from US tariffs following a bilateral agreement to lower certain duties on British exports. The BoE previously estimated that global trade frictions could lower UK GDP by 0.3% over three years and reduce inflation by 0.2 percentage points within two years.
