What to expect from the Bank of England’s interest rate decision this week
Key Points
- The Bank of England’s MPC is widely expected to hold the UK base rate at 3.75% on Thursday 30 April, with analysts calling a decision “almost certain” and another unanimous 9-0 vote likely.
- Geopolitical tensions in the Middle East, especially around energy supplies through the Strait of Hormuz, are driving upside inflation risks as oil and gas prices remain elevated.
- UK inflation rose to 3.3% in March and is forecast to climb further, with household inflation expectations jumping and raising concerns about second-round effects.
- Recent data shows mixed signals, including strong GDP growth and a stabilising labour market, but much of the resilience may be temporary as higher energy costs begin to weigh on demand.
- While April is a hold, risks of rate hikes in summer (June or July) are rising; markets are pricing in around two hikes this year, with the MPC’s language and forward guidance in focus.
The Bank of England’s Monetary Policy Committee (MPC) is widely expected to hold the UK base rate steady at 3.75% when it announces its decision on Thursday (30 April).
Analysts at RSM UK, in their latest MPC preview, say a hold is ‘almost certain’, likely accompanied by another unanimous 9-0 vote. The key focus will shift to the accompanying statement, minutes, and any updated communications from Governor Andrew Bailey and the committee.
Ongoing tensions in the Middle East, particularly around energy supplies through the Strait of Hormuz, remain the dominant factor.
While oil and gas prices have eased somewhat since the last meeting, they are still elevated compared to pre-crisis levels. This is feeding through into higher household fuel and utility bills and business costs, with inflation risks clearly on the upside.
Inflation rose to 3.3% in March and is expected to climb further once base effects and temporary policy measures fade. Household inflation expectations have also jumped, raising concerns among MPC hawks about second-round effects becoming unanchored.
Mixed economic signals
Recent UK data has shown resilience that could worry rate-setters:
- GDP surged 0.5% in February, with a clear upward trend in the three-month measure.
- The labour market stabilised somewhat, with unemployment dipping to 4.9%.
- Business surveys (PMIs) in April pointed to resilience but also rapid price pressures.
However, much of this strength may reflect catch-up from earlier weakness or front-loading ahead of potential disruptions. Doves on the committee can point to remaining slack in the labour market and the risk of a sharper slowdown in demand over the coming months as higher energy costs bite.
Longer-term risks point to possible summer hikes
With the rate decision looking nailed on, markets and economists will pore over the MPC’s language.
Governor Bailey has indicated no rush to raise rates, and the committee is likely to keep guidance broadly unchanged while acknowledging upside inflation risks, possibly through new energy price scenarios, similar to approaches taken by the European Central Bank.
Some members, such as Chief Economist Huw Pill and Catherine Mann, have sounded more hawkish recently. Others may push back if concerns about the labour market grow. The BoE will want to avoid repeating the market overreaction seen after the March meeting, when pricing swung sharply toward multiple hikes.
While April is expected to be a hold, risks of rate increases in the summer (potentially June or July) are rising. Markets are currently pricing in around two hikes for the year, which the MPC appears relatively comfortable with for now.
The ultimate trigger will be how long energy supply disruptions last and their impact on inflation versus growth. If geopolitical tensions persist, the balance could tilt toward tighter policy to prevent inflation from becoming embedded.
