Bank of England: Market Ignores Hawkish Vote Split

Date: 30 July 2026

Author: Kathleen Brooks, Research Director UK

Overview

The Bank of England (BOE) decided to keep interest rates unchanged at 3.75% during its latest meeting. However, there was a notable 6-3 split among the Monetary Policy Committee (MPC) members, with three members advocating for a rate hike, an increase from two members in the previous month.

Inflation Concerns

MPC member Megan Greene highlighted that inflation has remained above the target for five consecutive years, despite a moderation in the UK Consumer Price Index (CPI) in June. The committee expressed concerns about upward risks to inflation, particularly due to volatility in energy prices. Since the last meeting, Brent crude oil prices have risen by nearly $10, raising concerns about potential inflationary pressures.

Future Rate Hikes

While the BOE is currently maintaining its position, there is a possibility of a preemptive rate hike if energy prices continue to rise, especially if this leads to second-round effects such as increased wage growth. Despite the hawkish shift in the voting split, the BOE slightly revised down its central inflation forecast, expecting inflation to peak at 3.2% in Q4 2026, down from a previous forecast of 3.5%. The worst-case scenario anticipates a CPI rate of 4% for the following year, with a potential rise to 4.5% by mid-2027 if oil prices exceed $100 per barrel.

Market Reactions

Interestingly, despite the increase in the number of members voting for a rate hike, market expectations for a September rate hike have decreased. The probability of a rate hike at the next BOE meeting has fallen to 40%, down from over 50% prior to the meeting.

Reasons for Falling Rate Hike Expectations

Several factors contribute to the declining expectations for a rate hike:

• The BOE's focus on achieving the 2% inflation target, with most MPC members believing that economic weakness and slack in the labor market will limit second-round inflation effects.
• The slight decrease in the BOE's inflation forecast, which has led to reduced interest rate expectations, lower Gilt yields, and a weakening pound.
• Recent declines in oil prices, with Brent crude down more than 1% following reports of oil tankers leaving the Middle East, alleviating fears of a supply crunch.
• Speculation that political pressures may lead to a stabilization of oil prices ahead of the upcoming US Midterm elections.

Conclusion

The BOE's recent meeting has reinforced its 'active hold' stance, indicating readiness to act if necessary, but only in response to significant changes in the inflation outlook. The current sentiment reflects a cautious approach, with the majority of MPC members adopting a pragmatic view on rate hikes.

Market Impact

The immediate market reaction includes lower bond yields, particularly in the UK, with the 2-year Gilt yield dropping by 10 basis points. This has positively impacted the FTSE 100, which reached a new record high, while the weakening USD may support a recovery in the pound in the medium term.