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The Bank of England is expected to keep the base rate on hold at 3.75% on Thursday, as policymakers grapple with rising inflation risks and growing economic uncertainty linked to the Iran conflict.

A Reuters poll suggests the Monetary Policy Committee (MPC) will vote 8-1 in favour of no change, following a unanimous 9-0 decision last month to stand pat. But behind the apparent calm, tensions are building over whether rates may need to rise again later this year. Markets are already betting heavily on further tightening, with investors pricing in a 0.25 percentage point rise in July, another in September, and even a small chance of a third increase before the end of 2026.

That is despite warnings from Governor Andrew Bailey that such expectations may be premature.

The Bank is caught in a difficult balancing act. On one side, there are growing concerns that inflation could surge again, fuelled by higher energy prices and rising business costs. Inflation previously peaked above 11% in 2022, and policymakers are wary of a repeat.

The International Monetary Fund has forecast UK inflation could climb to around 4% this year, keeping Britain among the highest in the G7.

On the other side, there are mounting fears the economy could weaken, with signs of softer hiring and declining business and consumer confidence.

While most economists expect rates to stay unchanged for now, there are signs of a growing divide within the MPC.
Some analysts believe up to 3 policymakers could vote for an immediate rise to 4.0%, reflecting concerns that inflation pressures are becoming entrenched.

The Bank's chief economist, Huw Pill, has openly questioned the current "wait and see" approach, warning that delaying action risks missing the moment to control inflation.

By contrast, others on the committee are expected to argue that the full economic impact of the energy shock has yet to be felt - and tightening too soon could worsen a downturn.

The MPC is likely to repeat its previous guidance that it stands "ready to act" if needed, while stopping short of signalling imminent rate rises.

Economists say any hawkish language this week should not be taken as a guarantee of action.
Thomas Pugh, chief UK economist at RSM, warned the economic outlook could deteriorate in the coming months, potentially shifting the focus back to growth concerns.

Meanwhile, fresh forecasts due alongside Thursday's decision are expected to show higher inflation and weaker growth through 2026 and 2027.

For borrowers, a hold at 3.75% will bring temporary relief after a prolonged period of rate volatility.
However, with markets pricing in up to 0.5%-0.75% of further increases this year, the outlook for mortgages and loans remains uncertain.