The Bank of England’s Monetary Policy Committee kept Bank Rate at 3.75%, with an 8–1 vote. Societe Generale economists expect rates to stay unchanged through 2026.
They also say further rises of 50–75 basis points this year are possible if the US-Iran conflict continues. This is linked to ongoing energy price pressures.
Borrowing Trends And Policy Signals
Recent UK money and credit data showed higher borrowing. Households and firms appear to be securing rates in case borrowing costs rise.
Remortgaging and lending to non-financial firms rose to their highest levels since 2020. The Bank of England’s BEAR conference will allow MPC members to speak after the latest meeting.
Looking back to early 2025, we recall the Bank of England holding rates at 3.75% amidst a finely balanced debate. The primary risk at the time was the US-Iran conflict, which threatened to push rates significantly higher. That period was marked by a surge in borrowing as businesses and households braced for the expected hikes.
Those geopolitical risks did materialize through 2025, forcing the MPC to follow through with the hikes that were feared. We saw Bank Rate climb to its current level of 4.50% by the end of last year to combat the resulting energy price shock. Now, with tensions having eased since late 2025, the focus has shifted entirely to domestic data.
Trading Implications And Rate Cut Timing
The latest figures for April 2026 show that the UK economy is now stagnating under these higher rates, with Q1 GDP growth coming in at just 0.1%. While inflation has fallen, the most recent CPI reading of 2.9% remains stubbornly above the Bank’s 2% target. This puts the MPC in a difficult position between taming inflation and avoiding a recession.
For traders, this shifts the calculus from pricing in hikes to anticipating the timing of the first cut. The SONIA futures curve is now pricing in 45 basis points of cuts by the end of 2026, suggesting conviction is growing that the MPC will have to pivot. We see value in positioning for lower rates later in the year, using interest rate swaps or SONIA futures to reflect this view.
Given the conflict between sticky inflation and faltering growth, we expect significant volatility around future MPC meetings and data releases. This uncertainty makes options strategies attractive. Traders should consider buying volatility through instruments like straddles on short-sterling futures to profit from sharp interest rate moves in either direction.
