Bank of England keeps rates on hold – business industry reaction

The Bank of England Monetary Policy Committee (MPC) has voted to keep interest rates on hold at 3.75%.

At its meeting ending on 29th April 2026, the Monetary Policy Committee (MPC) voted 8–1 to maintain Bank Rate at 3.75%. One member voted to increase Bank Rate by 0.25 percentage points, to 4%.

The conflict in the Middle East means that prospects for global energy prices are highly uncertain. Monetary policy cannot influence energy prices but will be set to ensure that the economic adjustment to them occurs in a way that achieves the 2% inflation target sustainably. The policy stance required to achieve this will depend on the scale and duration of the shock, and how it propagates through the economy.

The April Monetary Policy Report sets out three scenarios that help to illustrate a range of possible outcomes for the UK economy.

CPI inflation has increased to 3.3%, and is likely to be higher later this year as the effects of higher energy prices pass through. There is a risk of material second-round effects in price and wage-setting, which policy would need to lean against. But the labour market continues to loosen, and a weakening economy could contain inflationary pressures. Financial conditions have tightened since the conflict began, which will help to reduce inflation over time.

Taking all the risks to the economic outlook into account, the Committee judges that it is appropriate to maintain Bank Rate at this meeting.

The Committeesays it  will continue to monitor closely the situation in the Middle East and how its impact propagates through the economy. The Committee stands ready to act as necessary to ensure that CPI inflation remains on track to meet the 2% target in the medium term.

Mike Randall, CEO of Simply Asset Finance said “The decision to hold rates offers a welcome sign of relative stability, yet the underlying message for UK SMEs is one of continued caution.

“An increasingly unpredictable global landscape is no doubt making it more challenging to time major investments, but we’re seeing that small business’ appetite for growth remains unchanged.”

“In this environment, it’s important that we continue to nurture SME ambitions and their confidence to invest. This will mean seeking and unlocking potential with targeted, and flexible funding that gives them reassurance when markets remain uncertain.”

Anna Leach, Chief Economist at the Institute of Directors, said “The MPC were expected to vote for a hold today, with just one member – Huw Pill – keen to act early to stem inflationary pressures further out. The Bank’s updated forecasts include several scenarios for the conflict in Iran, incorporating mixtures of conflict duration and inflation persistence. Two of those lift inflation this year by about 1% point to average 3.3%, with the most adverse scenario seeing it rise to 4.5%. Next year’s inflation could be between 1 and 3% points higher. Meanwhile they’ve taken down expected growth for 2026 to 0.7-0.8%, with growth next year tempered to 0.8-1%. All scenarios see unemployment rising to around 5.5% next year – a marked contrast with the 4.0% seen a year after the Ukraine war.

“The contrasts between rising inflation on the one hand, and weakening growth and falling demand for labour on the other, illustrates the Bank’s bind. A weaker economy should reduce the likelihood that inflation expectations push up. But rises in food and energy prices, with heightened sensitivity to both amongst firms and households, could reinforce inflationary forces. The Bank’s focus is largely on how firms respond to the crisis. Its own data suggest firms are mostly expecting to respond to the conflict via a combination of higher prices and lower profits, while expecting to maintain their workforce size. With firms entering this conflict in a more fragile state, the Bank’s caution is warranted.”

Julian Jessop, Economics Fellow at the Institute of Economic Affairs said “The Bank of England was right to keep interest rates on hold today. There is huge uncertainty, reflected in the three different scenarios discussed in the accompanying Monetary Policy Report. But the Committee has judged that the upside risks to inflation from higher commodity prices are being offset, at least for now, by the weakness of the labour market and the downside risks to economic growth.

“The Bank now expects CPI inflation to dip from 3.3% in March to 3.0% in April, then rise again to peak at a little over 3.5% in the autumn. That should just about be low enough to keep interest rates on hold, especially with unemployment forecast to pick up again too. But there is one other factor which deserves more attention. This is that growth in broad money supply is also relatively subdued, especially compared to the surge which fuelled the inflation spike in 2022.

“The Bank’s latest Monetary Policy Report does at least note that the ratio of broad money to nominal GDP has fallen further below its pre-pandemic trend. However, none of the MPC members mention this in their comments.”

Suren Thiru, ICAEW Chief Economist, said “Keeping interest rates unchanged will feel like a demoralising setback for households struggling with this renewed energy shock and those businesses trying to access enough finance to help mitigate the damaging headwinds from the Iran war.

“The near unanimous backing for this decision suggests that interest rates are currently in a holding pattern as most policymakers wait for the fog to clear on the economic fallout from the Iran conflict before deciding whether to raise rates.

“With the Bank’s new forecast scenarios indicating that stagflation is now a critical risk, future policy decisions will become more fraught as rate-setters try to strike the balance between dealing with rising inflation without further damaging wider economic activity.

“Though interest rates could well remain at 3.75% for the rest of the year, it will become an increasingly close call with the vote split among committee members likely to turn more hawkish if inflation surges as the Bank is forecasting.”