Central Bank holds rates in April

Latest decision: In late April, the Central Bank voted to keep the bank rate at 3.75%, following cuts of 150 basis points from August 2024 to December 2025.

Bank takes cautious approach in light of uncertain geopolitical outlook: The Bank decided to take a wait-and-see approach to evaluate the impact of past monetary easing and the evolution of the Iran war; the war is generating considerable uncertainty around the outlook for inflation and GDP growth. A weakening labor market and soft underlying economic activity meant there was no need for an immediate rate hike to curb higher price pressures stemming from Middle Eastern conflict.

Next move is uncertain: The Central Bank said it “stands ready to act as necessary” to meet the target”. Panelists have revised up their end-2026 bank rate forecasts considerably since end-February, with the Consensus for the rate to close the year around its current level. However, some panelists see rate cuts and some see hikes.

Panelist insight: Berenberg’s Andrew Wishart said: “Very different economic conditions to those that prevailed in 2022 suggest that rate hikes are unnecessary, and that the BoE will eventually be able to resume cuts. Higher inflation near-term inflation will further erode household income, already squeezed by decelerating pay growth, a stagnant jobs market and a rising personal tax burden. Meanwhile, an increase in businesses costs that they cannot pass on could undermine the recent stabilisation of the jobs market. Fiscal consolidation and a weak labour market should ensure that the UK does not deal with this inflation shock worse than its peers. As our baseline scenario, we expect the Strait of Hormuz to reopen soon. If so, inflation can fall below 2% in H2 2027 and the BoE can resume interest rate cuts in Q4.” ING’s James Smith took an opposing view: “We’re now edging towards a hike in June. It’s certainly not guaranteed, but that’s now narrowly our base case, having previously felt rates would stay on hold through this year. Whether that’s followed by one or even two extra hikes, as markets are currently pricing, we’re less convinced right now.”

How should you choose a forecaster if some are too optimistic while others are too pessimistic? FocusEconomics collects British interest rate projections for the next ten years from a panel of 42 analysts at the leading national, regional and global forecast institutions. These projections are then validated by our in-house team of economists and data analysts and averaged to provide one Consensus Forecast you can rely on for each indicator. By averaging all forecasts, upside and downside forecasting errors tend to cancel each other out, leading to the most reliable interest rate forecast available for British interest rate.

Download one of our sample reports to visualize what a Consensus Forecast is and see our British interest rate projections.

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