Will interest rates go down today? Bank of England’s key factors and 2026 predictions

Will interest rates go down today? Bank of England’s key factors and 2026 predictions The Monetary Policy Committee cut rates four times last year but 2026 is far more uncertain - Bookmark - CommentsGo to comments The Bank of England’s (BoE) next meeting to determine interest rates is on Thursday 18 June and all eyes will be on the Monetary Policy Committee (MPC) and its members’ response to the war on Iran. The base rate - sitting now at 3.75 per cent after being cut four times last year – impacts business, consumers and taxpayers through everything from mortgages to loans and savings, so what do experts foresee, both this week and beyond? Will interest rates be cut? Rates were cut just before Christmas to the lowest point in almost three years and more was expected to come across 2026. In fact, up until mid-February there was a strong chance of a rate cut in March or April, with an expected second cut later in the summer. But everything changed with the Iran war which has sent oil prices soaring, raising energy costs and with inflation still predicted to rise once more. While rates were near-zero for a long time after the financial crisis, most analysts and economists now expect the “neutral rate” - how low the bank will cut to and then leave it, where the economy continues to grow but inflation is suppressed - will be higher this time, perhaps 3 per cent. That means only another three cuts might come in total during this cycle, and as we get closer to that rate, the cuts could be spaced out further. However, events in the Middle East have thrown those expectations into disarray and there is now real uncertainty which way rates will go in the nearer term - though a recently-brokered peace deal may settle some of those nerves. Analysts expect the rate to be held at 3.75 per cent for this vote, though some have argued for raising rates earlier this time to head off worse inflation down the line. Influential factors Get a free fractional share worth up to £100. Capital at risk. Terms and conditions apply. ADVERTISEMENT Get a free fractional share worth up to £100. Capital at risk. Terms and conditions apply. ADVERTISEMENT Interest rate decisions take into account multiple factors over long periods of time, as well as expectations about what lies ahead – and 2026 again looks tricky in both regards. The MPC has nine members, and their votes decide whether the base rate is cut, raised, or kept the same. Among the elements MPC members will have been looking at are job and wages data, the level of inflation across the UK, and economic growth. Higher inflation is a reason to keep interest rates up, as it can discourage businesses from investing in new projects or hiring – things that in turn raise earnings and spending power. Conversely, fewer jobs and lower wages means less spending power and lower demand, which helps to stem further price rises. Recent key data has shown salary growth slowing and unemployment rising throughout the year, though wages are still rising faster than inflation. These are factors that can see interest rates decrease, while there are also external factors that can affect the UK, which the government and Bank of England can have little or no control over. UK outlook As well as the domestic situation of higher-for-longer inflation, there has been rising unemployment across the UK, despite a minor drop this month. Very slow economic growth is another factor to weigh up. But the big economic impact of the war in Iran is the surging price in oil and gas, which when sending energy bills higher adds to a return of high inflation. Sanjay Raja, chief UK economist at Deutsche Bank, predicted the BoE would use recent economic data to “buy more time” and see how the peace deal framework plays out. “We see little rush for the MPC to push for rate hikes just yet. Instead, the Bank can let the dust settle on the energy conflict before recalibrating policy again,” he said. Aaron Shinwell Chief Lending Officer at Nottingham Building Society added: “A hold at 3.75 per cent is widely predicted today, which will feel like a welcome moment of stability for many households who may have been expecting a hike. “However, while rates may not move this time, the wider picture remains uncertain. Inflation remains above the Bank of England's 2% target and is expected to pick up again over the coming months, due to upcoming rises to the energy price cap, and broader issues relating to global uncertainty. This means families are likely to continue feeling pressure from the cost of everyday essentials. As a result, people should avoid assuming a hold means the squeeze on household finances is over.” Elsewhere, it’s worth remembering that with mortgages in particular, many products are priced using future expectations of the interest rate (swap rates), so changes in that market can already be accounted for. For savers, though, whether or not an immediate cut to variable rates is coming, it’s always worth checking the best offers on the market to make sure your money is earning as much as it can for you. What about the rest of 2026? The further into the future we look, the more murky the picture is – and it can change rapidly anyway as we saw last year with tariffs, Budget uncertainty, oil shocks and more, and have now witnessed even across the past month in Iran. Markets have wavered wildly recently between expecting only one cut this year and up to three rises occurring if the situation in the Middle East is prolonged. Currently, the money markets are pricing in almost two hikes, though note that this is not always the same as economists actually expecting the Bank of England will follow suit - as evidenced by that market dropping rapidly once an initial peace deal was agreed between the US and Iran. The next MPC vote date is on 30 July. Join our commenting forum Join thought-provoking conversations, follow other Independent readers and see their replies Comments