The Bank of England, in line with expectations, maintained its main interest rate at 3.75% during today’s Monetary Policy Committee (MPC) meeting.
Figure 1: Interest Rates and Bond Yields in the UK (1998–2026)
Source: XTB Research, 30.07.2026
The distribution of votes is notable in this context. Not only Huw Pill and Megan Greene voted for a hike, but Catherine Mann did as well, making the vote closer than markets had anticipated (6 to 3 in favour of a pause). It is worth noting that Mann was one of only two people who did not vote to cut interest rates in May 2025.
According to her, the key factor was Donald Trump breaking the peace memorandum concluded with Iran. Furthermore, as she mentioned, "the costs of counteracting the risk of rising inflation, which ultimately does not materialise, would be lower than the costs of under-counteracting that risk." We are referring primarily to potential second-round effects, to which Megan Greene also drew attention.
Figure 2: BoE Vote Distribution (2025–2026)
Source: Own compilation based on BoE data, 30.07.2026
In simple terms, second-round effects can occur as a result of increased inflation expectations, i.e., the general perception that inflation will remain elevated for longer, regardless of the academic validity of such feelings. These often lead to increased wage expectations, which, given a tight labour market, such as a low unemployment rate, often results in wage growth. If wages grow faster than inflation (meaning they are positive in real terms) and citizens do not need to rebuild savings, we typically observe an increase in consumption.
Although the majority of policymakers did not deem a hike necessary right now, and Governor Bailey noted that "keeping rates unchanged is the right move," especially given that "the domestic situation is generally more favourable in terms of inflation prospects," it seems that such a move remains a matter of time.
However, we interpret the communication from the BoE as slightly less hawkish than what the officials provided in June. Swati Dhingra mentioned that it is worth waiting a little longer for the full effects of the current energy shock, and indeed it seems possible that September may ultimately not bring a hike.
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