London Daily

Focus on the big picture.
Monday, Jul 06, 2026

Bank of England hints rates near peak after 10th hike

Bank of England hints rates near peak after 10th hike

The Bank of England signalled the tide was turning in its battle against high inflation after it raised interest rates on Thursday for the 10th meeting in a row, prompting investors to prepare for the end of its run of higher borrowing costs.

The BoE's interest rate setters voted 7-2 to push Bank Rate to 4.0% - its highest since 2008 - from 3.5%. The move had been expected by most investors and economists polled by Reuters.

Like other central banks such as the U.S. Federal Reserve and the European Central Bank, which raised rates on Wednesday and Thursday respectively, the BoE is trying to smother the risks from an inflation rate that is way above its target.

But it is also worried about aggravating what is expected to be the worst recession among big rich economies this year.

It said its rate hikes going back to December 2021 were likely to become an increasing drag on the economy, helping to bring inflation down to about 4% by the end of this year. Previously the BoE had forecast 2023 inflation at around 5%.

"We've seen the first signs that inflation has turned the corner," Governor Andrew Bailey told reporters after the rate hike. "But it's too soon to declare victory just yet, inflationary pressures are still there."

The Monetary Policy Committee (MPC) would need to be "absolutely sure" that inflation was receding, he said.

The MPC said further interest rate hikes would hinge on evidence of more persistent price pressures.

Previously the BoE had said it would "respond forcefully, as necessary" to signs of further inflation pressure, and that "further increases in Bank Rate may be required".

Investors now think the BoE will raise rates once more, to 4.25% in March, and then keep rates steady, in contrast to expectations before the meeting that it would probably raise rates twice more this year to reach 4.5% by June.

Sterling fell sharply against the U.S. dollar while British government bonds chalked up their biggest daily gains since October.

Bailey said labour market data would be key for understanding how quickly inflation falls. Current pay settlements giving average raises of 6% were a concern, but there were signs that they would fall later this year.

Alexander Batten, a bond portfolio manager with Columbia Threadneedle Investments, said recent data suggested that a sharp weakening of the labour market was coming "but we suspect this may not come soon enough to prevent one final 25 basis-point hike in March".

Martin Beck, an economist with forecasters the EY ITEM Club, said the peak in Bank Rate had probably now been reached given the weak outlook for the economy, and rate cuts could occur by the end of the year.

The BoE's announcement came a day after the U.S. Federal Reserve slowed the pace of its rate hikes with a quarter-point move but said it expected further increases would be needed. The European Central Bank raised rates by a half a percentage point on Thursday to 2.5% and signalled at least one more increase.

The BoE was less clear about its intentions. It said inflation would fall from above 10% now to below its 2% target in just over a year's time.

But it also warned that the risk that inflation could overshoot its forecasts was the biggest since the MPC was formed in 1997 because of persistent labour market pressures and higher-than-expected core and domestically generated inflation.

BoE Deputy Governor Ben Broadbent stressed to reporters that while Britain appeared to have turned a corner on inflation, that was not a comment about Bank Rate hitting its peak.


SHALLOWER RECESSION


The BoE said Britain remained set for a recession but it was likely to be "much shallower" than previously feared due mostly to lower energy prices and weaker market interest rate expectations.

The economy was now seen contracting by 0.5% in 2023 compared with the 1.5% shrinkage forecast in November.

Britain's economy was forecast to shrink by 0.1% during the current quarter, starting a recession which would last five quarters - rather than eight forecast in November - and reducing economic output by a modest 1%.

The BoE saw output still shrinking in 2024 and barely growing in 2025.

Finance minister Jeremy Hunt has promised measures to revive growth in a budget on March 15, ahead of a national election expected next year.

Responding to the BoE decision, Hunt said he would ensure budget measures did not delay the fall in inflation.

The International Monetary Fund this week said Britain's economy would shrink by 0.6% this year while all the other Group of Seven nations were likely to grow.

Britain has been hit hard by the energy price surge after Russia's invasion of Ukraine as it relies heavily on gas for power generation.

It has also suffered a fall in the size of its workforce after the pandemic and post-Brexit restrictions on European Union workers. Unlike other countries, that fall in so-called labour market activity has not yet reversed in Britain.

The BoE said Britain's lack of workers, combined with low business investment and weak productivity growth, meant the economy could probably only grow by about 0.7% a year in 2024 and 2025 without generating inflationary heat.

Before the pandemic, the potential growth rate was about 1.7%.

The BoE saw Britain's economy still below its pre-pandemic size until after 2025, representing seven lost years for growth.

Newsletter

Related Articles

0:00
0:00
Close
NHS Maternity Reform Expands Central Oversight After Critical National Review
Dover Border Warnings Highlight Post-Brexit Pressure on Cross-Channel Trade
Private Nuclear Consortium Advances £35 Billion Small Reactor Strategy in UK
UK Labour Leadership Signals Shift Toward Reindustrialisation and Regional Power
House of Lords Debates Rail Nationalisation Bill to Create Great British Railways
Scottish Affairs Committee Expands Inquiry Into SNP Financial Conduct
Evri Launches £1.2 Million Defamation Case Against BBC Over Panorama Investigation
Port of Dover Warns of Border Delays as EU Entry-Exit System Looms
Nigel Farage Referred to Standards Watchdog Over Alleged Undeclared Benefits
UK Government Faces Scrutiny Over Claimed AI Datacentre Investment After FOI Findings
UK and India Finalise Trade Agreement Rules Ahead of Mid-July Implementation
UK Government Establishes National Maternity Commissioner After Major Review of NHS Care Failures
Private Consortium Plans £35 Billion UK Nuclear Programme Targeting Small Modular Reactor Rollout
Andy Burnham Sets Out Ten-Year Reindustrialisation and Devolution Plan as Leadership Transition to UK Premiership Advances
Morocco and France Advance as 2026 FIFA World Cup Enters Quarterfinals.
Historic 2026 Tour de France Opens in Barcelona With Revamped Team Time Trial.
Global Mergers and Acquisitions Approach $4 Trillion Defying Geopolitical Tumult.
Negotiators Advance 20-Point Framework for Gaza Ceasefire and Demilitarization.
OECD Warns Middle East Conflict Will Depress Global Economic Growth.
Ukrainian Drones Strike Major Oil Terminal in St. Petersburg.
World Meteorological Organization Issues Urgent Alert Over Rapidly Intensifying El Niño.
United States Commemorates 250th Anniversary With Diplomatic Summits and Global Flotilla.
Iran Begins Days-Long Funeral for Supreme Leader Khamenei Amid Strait of Hormuz Standoff.
Technology giant reports surging carbon emissions driven by artificial intelligence infrastructure demands.
Artificial intelligence adoption accelerates workforce reductions across the technology and financial sectors.
Global technology and financial conglomerates collaborate to launch a new stablecoin standard.
United States regulators lift export restrictions on a major frontier artificial intelligence model.
Royal Society Exhibition Highlights Growing Focus on Public Trust in Science
Energy Costs and Supply Chain Risks Continue to Shape UK Business Strategy
Rapid Rise in Artificial Intelligence Adoption Reshapes UK Corporate Operations, ONS Says
UK Businesses Turn Defensive as Economic Outlook Weakens, Institute of Directors Data Shows
UK Government Faces Criticism Over Late Extension of Pub Hours for England Match
Inquest Continues Into Death of Noah Donohoe as Jury Deliberates Findings
Calls for Stronger Wildlife Attraction Safety Rules After Crocodile Enclosure Injury
City Fire Under Control After Major Blaze Sends Smoke Across Urban Area
Police Investigation Continues After Officer Killed During Road Closure Duties
Blackpool Hotel Fined £120,000 After Electric Shock Incident Involving Child
Whistleblowers Allege Delays in UK Special Educational Needs Support Services
Calls Grow for Improved Support for UK Armed Forces Personnel Facing Health Conditions
Rising UK Energy Price Cap Increase Prompts Wider Concerns Over Household Pressures
UK Businesses Remain Concerned Over Global Conflict Risks to Supply Chains, ONS Finds
Office for National Statistics Reports Rising Adoption of Artificial Intelligence Across UK Businesses
Institute of Directors Reports Deepening Pessimism in UK Business Confidence Index
England Prepare for World Cup Round of 16 Match Against Mexico in Mexico City
Royal Society Summer Science Exhibition Concludes in London After Week-Long Showcase of Research
Silverstone Hosts British Grand Prix as Lando Norris and Lewis Hamilton Lead Home Crowd Expectations
Cornwall Van Dwellers Face Homelessness Risk as Council Tightens Enforcement
Police Investigate Stabbing of Iranian Journalist in London
Rare Copy of US Declaration of Independence Discovered in UK Archive
Department for Education Data Shows Persistent Literacy Gap Among Disadvantaged White Pupils
×