11th June 2026
The renewed exchange of strikes between the United States and Iran today has increased the likelihood that the Bank of England will adopt an even more cautious tone next week, although it is still unlikely to change the expected decision to hold interest rates at 3.75%.
Oil prices remain the biggest concern.
Every time the conflict escalates, financial markets immediately look at oil.
Today's strikes initially pushed oil prices higher again because traders became more concerned about disruption in the Strait of Hormuz, although prices later eased as markets weighed the possibility that supplies would continue to flow.
For the Bank of England this matters because:
Britain imports much of its oil and gas.
Oil is priced in U.S. dollars.
Higher oil prices feed into petrol, diesel, heating costs and transport.
Those higher costs eventually push up inflation.
The Bank hates uncertainty
Central banks dislike making major policy changes when events are moving rapidly.
Next Thursday, the Monetary Policy Committee could be facing:
an active Middle East conflict,
volatile oil prices,
a stronger U.S. dollar,
and uncertainty over whether shipping through the Strait of Hormuz will be disrupted.
That is exactly the kind of environment in which policymakers tend to wait rather than cut interest rates.
It strengthens the case for "higher for longer"
Only a month ago, many economists expected several Bank Rate cuts during 2026.
Now the picture has changed because of:
higher energy prices,
U.S. inflation rising to 4.2%,
renewed military action,
and concerns about imported inflation.
As a result, markets increasingly believe the Bank will move very cautiously.
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[The statement could be more important than the rate decision[/b]
Next week's announcement will probably be:
Interest rates unchanged at 3.75%.
Recognition that inflation risks have increased.
A warning that energy prices are being monitored closely.
Less confidence about future rate cuts than there was a few weeks ago.
That wording may prove more significant than the decision itself.
Could this eventually lead to another rate rise?
It is still not the central expectation, but the probability has increased.
If all of the following happened:
oil moved towards $100–110 per barrel,
the Strait of Hormuz remained significantly disrupted,
the pound weakened against the dollar,
and UK inflation started climbing back above 3%,
then the Bank of England could conclude that further interest rate cuts are no longer appropriate. In a more severe scenario, it might even have to consider raising rates again to prevent inflation becoming embedded.
The narrative has changed very quickly.
Just a few weeks ago, commentators were asking:
"When will the Bank of England cut interest rates again?"
Today, after renewed U.S.–Iran strikes, higher U.S. inflation and continued volatility in oil markets, the question has become:
"Has the window for further UK interest rate cuts already begun to close?"
That shift in expectations is one of the biggest economic stories of the moment, because it could affect mortgage holders, businesses and households across the UK if inflationary pressures persist.