UK Inflation Threat Looms as BoE Signals Rates On Hold Through 2026
The Bank of England is expected to hold interest rates steady through 2026 despite surging inflation pressures from the Middle East conflict, with UK economist polls showing elevated stagflation risks.
Rate Hold Strategy
The Monetary Policy Committee is tasked with keeping inflation at 2%. It was already much higher before the war and is set to rise significantly in coming months before easing back early next year.
Stagflation Concerns
Asked about the risk of stagflation in the UK economy, 17 of 22 economists said it was high or very high, while five said low. The economy had become more stagflationary since the start of the Middle East war.
Growth Downgrades
Nearly 75% of respondents cut their growth forecast for this year with a median of 0.7% compared with 1.0% in the March survey. The International Monetary Fund also chopped its UK growth forecast recently to 0.8% from 1.3%.
Inflation Forecast Revisions
More than half of contributors who participated in both the April and late-March polls raised their 2026 inflation forecasts by over 0.4 percentage points on average. Inflation is expected to average 3.2%, the poll median showed.