The Bank of England (BoE) will almost certainly hold interest rates at 3.75% at its meeting next Thursday and most likely in another unanimous 9-0 vote. There’s still little clarity on when the Iran conflict might be resolved. The uncertainty over both the future direction of energy prices and their impact on the economy makes waiting for more information a valuable option for the MPC. However, this geopolitical picture and the resilience of some recent economic data increase the risk that interest rates will rise in the summer.

With the result of the meeting looking nailed on, Monetary Policy Committee (MPC) communications will be Thursday’s main focus. Now that BoE Governor Andrew Bailey has signalled he’s in no rush to raise rates, the Committee will probably keep its guidance unchanged.

However, there is potential for a more hawkish signal from some members, but policymakers will want to avoid a similar reaction to the one after March’s meeting when markets jumped from pricing in one rate hike to four. This required Governor Bailey to make a clarifying statement less than two hours after the meeting. It points to the BoE keeping the statement relatively neutral and relying on new energy price scenarios − similar to the European Central Bank and along the lines suggested by MPC Members Alan Taylor and Swati Dhingra in the last set of minutes − to communicate the risks.

MPC focus shifts from growth to inflation

At face value, most of the recent UK economic data has had a definite hawkish tinge as far as the MPC is concerned.

GDP surged by 0.5% in February. While we take the single-month measure with a pinch of salt, the 3m/3m figure is also 0.5% and the upward trend is clear. This means we entered the crisis on a stronger footing than previously thought.

The labour market showed signs of stabilising in February with the unemployment rate dropping to 4.9% − even if this does look erratic − largely due to people leaving the workforce.

The PMI survey for April showed surprising resilience among businesses, while also pointing to rapid increases in price pressures. Again, this should be treated cautiously, given it’s consistent with inflation of 6−7%.

Finally, inflation jumped to 3.3% in March. It looks almost certain to go higher once we get past April’s base effects and policy measures-induced dip. This comes off the back of household inflation expectations rising sharply in March. That will be especially worrying to the hawks on the Committee who are concerned about these becoming unanchored.

Adding to this, oil and natural gas prices are lower now than they were at the last meeting, but still well above their pre-crisis levels, suggesting there’s significant further energy inflation in the pipeline.

But, there’s enough for the doves to land on, too. Stronger growth at the start of 2026 is probably at least partly a catch-up from the Budget-induced slump at the end of last year. There’s still plenty of slack in the labour market and private-sector wage growth is likely to come in below the MPC’s Q1 forecast. What’s more, much of the surprising rebound in April’s PMIs was probably due to firms front-loading activity ahead of price rises or supply chain disruptions. That sets up the risk of a sharp slowdown in the summer.

Ultimately, we suspect the MPC will be relatively comfortable with market pricing of two rate hikes this year, meaning the guidance should be little changed from last month. Individual rate-setters, BoE Chief Economist Huw Pill and MPC Member Catherine Mann, may sound more hawkish though following their recent statements, which make it clear they are significantly more worried about inflation persistence than an economic downturn. But, this may be offset by the doves becoming more concerned about the labour market.

MPC’s hawkish tilt doesn’t guarantee action on rate rises

We would caution, though, that even if the Guidance and Minutes from April’s MPC meeting do have a slightly hawkish feel, then it doesn’t necessarily mean rate rises will follow imminently.

The economic data is likely to take a downturn over the next few months, which could shift the emphasis back before June’s meeting to concerns about the economy, especially if the unemployment rate ticks back up.

Of course, the ultimate determinant of rate hikes will be how long energy supplies through the Strait of Hormuz are disrupted. Given there’s little sign of progress on peace talks or any lasting agreement, the risks that UK interest rates will have to go higher in the summer are clearly rising.

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