​Bank of England chief says interest rate cuts 'off the table' ​

Governor says policymakers are monitoring the impact of higher energy prices as markets expect rates to remain unchanged

Governor says policymakers are monitoring the impact of higher energy prices as markets expect rates to remain unchanged

Bank of England Governor Andrew Bailey has said interest rate cuts remain “off the table” for now, signalling that borrowing costs are likely to stay at 3.75 per cent when policymakers next meet.

Speaking at the European Central Bank’s annual conference in Sintra, Portugal, Mr Bailey said recent geopolitical tensions involving Iran had shifted the outlook for monetary policy.

“There was an expectation that we would cut rates this year,” he said.

“That was off the table in March, and it’s off the table at the moment.”

Markets had previously anticipated further reductions during 2026, but expectations have changed following the conflict in the Gulf, with investors now largely expecting rates to remain unchanged for the rest of the year.

Despite ruling out cuts, Mr Bailey said he has not supported raising rates either, pointing to signs of a weakening economy.

“We’ve got a softening economy, so we’re seeing a softening labour market; we’re seeing some softening of activity,” he said, adding that evidence of slower growth had already been emerging before tensions escalated in the Middle East.

The Bank left rates unchanged in March, a decision that contributed to tighter financial conditions as mortgage rates rose by around one percentage point.

At the Monetary Policy Committee’s (MPC) most recent meeting on June 18, members voted 7–2 to keep the Bank Rate at 3.75 per cent.

Mr Bailey said policymakers are watching closely to see whether higher oil and gas prices feed through into broader inflation.

“We’re very focused on the risks of pass‑through of the energy prices to indirect effects, and things like food prices and the second‑round effects,” he said. “We obviously don’t want inflation to become embedded.”

Consumer price inflation stood at 2.8 per cent in May, but the Bank expects it to rise to around four per cent later this year as higher energy costs filter through to households and businesses.

Mr Bailey also warned that forecasting future energy prices remains difficult, saying oil and gas futures have historically been “terrible indicators” of where prices eventually move.

The MPC will review the latest economic data when it meets again on July 30.

The UK’s quarterly energy price cap means changes in wholesale gas and electricity prices take time to reach household bills.

Ofgem increased the annual cap by £221 to £1,862 in May, with the revised level taking effect on July 1 and remaining in place until the end of September.

While the cap smooths volatility, higher prices can still contribute to inflation over time.

A Reuters survey of economists found most expect the Bank to leave rates unchanged for the rest of the year, while financial markets are pricing in roughly a 75 per cent probability of a single quarter‑point increase.