Bank of England holds UK interest rate at 3.75% as inflation stays above target and two MPC members push for a hike

Summary

The Bank of England's Monetary Policy Committee voted 7-2 on 19 June 2026 to hold the UK base rate at 3.75%. UK CPI stood at 2.8% in May 2026, above the Bank's 2% target, with services inflation and annual wage growth both elevated above levels the MPC considers consistent with returning to target over the medium term. The two dissenting members voted to raise the rate to 4.00%. The 3.75% rate represents the floor of a cutting cycle that began in late 2024 from a peak of 5.25%; the Bank has reduced rates in a sequence of 25 basis point steps. The June decision follows a March 2026 hold at the same level, during which the first dissents for a hike appeared. The hold comes against a backdrop of UK political transition: Prime Minister Keir Starmer resigned on 22 June 2026, and the Labour succession to Andy Burnham has added near-term fiscal policy uncertainty. The Bank also cited the expected dampening effect of lower global energy prices, linked in part to progress on a US-Iran nuclear framework, as a factor supporting the hold rather than a hike.

The split

The 7-2 majority held because services CPI and wage growth, while above target, were trending down and the global trade environment, including tariff uncertainty from US trade policy, was adding downside demand risk sufficient to justify caution. The two dissenters argued that holding at 3.75% with inflation still 40 basis points above target and wages growing faster than the 2% consistent path was creating an asymmetric risk: if the Bank waited too long to tighten, it would face a harder and more disruptive path back to target. Markets had priced roughly one more 25 basis point cut later in 2026 before the June decision, but the hawkish dissents shifted expectations toward a longer hold. The political backdrop, including the Labour succession and uncertainty about the Burnham government's fiscal plans, made the MPC more cautious about forward guidance than it might otherwise have been.

By the numbers

• 3.75%, UK base rate held on 19 June 2026
• 7-2, MPC vote split; 2 members voted to raise to 4.00%
• 2.8%, UK CPI in May 2026 (target: 2%)
• 5.25%, peak UK base rate before the current cutting cycle
• 4.00%, rate advocated by the two dissenting MPC members

Why it matters

The 7-2 split is more hawkish than the preceding 8-1 vote and signals that the cutting cycle that began in late 2024 has reached a contested floor. If services inflation remains sticky or wage growth does not moderate, the MPC may face pressure to resume tightening in the second half of 2026 rather than cut further. For UK gilt markets, the hold and the hawkish dissents put a floor under short-term rates but introduce uncertainty about the terminal rate. The Burnham government's first fiscal statement will be a critical input into whether the Bank sees domestic demand as disinflationary or reflationary. For UK households, the 3.75% base rate means variable mortgage rates remain elevated compared to the pre-tightening cycle era but have materially eased from the 2024 peak.

What to watch

• Whether UK CPI falls toward 2% or stalls in the 2.5-3% range through Q3 2026.
• Whether the Burnham government's fiscal plans add or subtract inflationary pressure in the Bank's August forecast round.
• Whether the MPC vote split widens to 6-3 or narrows back to 8-1 at the August meeting.
• Whether the Iran nuclear deal's expected energy price effect shows up in the UK CPI data before August.