Client Update - 1st May 2026

Yesterday the Bank of England has maintained interest rates at 3.75%, while indicating that further increases may be required if the ongoing energy shock linked to the conflict in Iran continues to place upward pressure on global prices and, in turn, UK inflation.

At its latest meeting, the Monetary Policy Committee (MPC) voted 8–1 to keep rates unchanged for a third consecutive time. The sole dissent came from Huw Pill, the Bank’s Chief Economist, who supported a 0.25 percentage point increase in light of what he described as “upside risks to price stability”.

The Bank’s stance shifted in March after the escalation of US–Israeli military action in Iran led to the effective closure of the Strait of Hormuz and a sharp rise in oil prices. Brent crude briefly exceeded $125 per barrel on Thursday, heightening concerns that prolonged disruption to energy supplies could influence wage setting and broader inflation dynamics.

Following the meeting, Bank of England Governor Andrew Bailey described the current rate level as “reasonable” given the economic backdrop and the uncertainty surrounding developments in the Middle East. He emphasised that the Bank was not signalling an imminent rate rise, noting that future policy decisions would depend on how the energy shock evolves. He reiterated the Bank’s commitment to returning inflation to its 2% target once the immediate effects of higher energy prices subside. Expectations for a rate increase at the MPC’s June meeting fell from around 70% to 50%.

The minutes of the meeting highlighted a more divided MPC than in recent months. While Pill was the only member to vote for an immediate rise, several others signalled they could support higher rates if inflation risks intensify. External member Megan Greene noted that an increase “may be necessary” in forthcoming meetings, and Catherine Mann indicated she would expect further tightening if inflation data and expectations continue to rise. UK inflation accelerated to 3.3% in March, driven largely by higher petrol prices.

Given the heightened uncertainty surrounding the Middle East conflict, the Bank departed from its usual practice of providing a single central forecast and instead outlined three scenarios. Its central scenario (Scenario B) assumes “higher and more persistent” energy costs and suggests that at least two rate increases may be required over the coming year to return inflation to target. However, Governor Bailey also noted that the tightening in financial conditions since March may already be helping to contain inflationary pressures. As seems to be the case currently, news flow fluctuates weekly and often daily and whilst we are cognisant of the risks of a central bank policy mistake, we are comfortable in our positions in quality companies with strong cashflows and competitive advantages. We will wait for further developments, but for now we are happy not to be too aggressive in the face of heightened geopolitical risks once more. We will keep a keen eye on matters for you. Do have a good weekend.