Bank of England interest rates update as City expert highlights one 'big factor'
LONDON, UNITED KINGDOM – 2026/03/27: A cyclist seen waiting for a green light outside the Bank of England. The pressure on the FTSE 100 has intensified after Wall Street suffered its worst session since the start of the war. Oil prices are up and weaker retail figures have impacted the UK economy. (Photo by Andy Barton/SOPA Images/LightRocket via Getty Images) (Image: SOPA Images, SOPA Images/LightRocket via Getty Images)
A top City analyst has set out his expectations over the direction of interest rates in the UK ahead of the next Bank of England meeting on the matter.
The next Bank of England (BoE) interest rate decision will be announced after the Monetary Policy Committee meets on April 30.
There had been hopes that cuts would be made to the rate this year as inflation fell. But the Iran war has changed the landscape for central bankers – with the oil and gas price surge putting upward pressure on inflation rates here and across the world.
Leading City analyst Simon French told City AM forecast that policymakers at the Bank of England will establish a ‘high bar’ for implementing any interest rate adjustment later this month despite mounting expectations of rising inflation.
But he predicted that next month could be significant in working out what happens down the line. He says the fallout from the local elections on Thursday, May 7 could play a ‘big factor’.
Sir Keir Starmer is under mounting pressure over his leadership, with low poll ratings and growing concerns that Reform could make large gains next month.
New headlines over the Mandelson affair have led for some to call for him to resign – and senior Labour figures are waiting in the wings.
Bookmaker Paddy Power says: “A new Labour Prime Minister could take over before a General Election amid talk of a coup. As a result, Angela Rayner is the favourite with Paddy Power to be the next Prime Minister of the UK after Keir Starmer. The former Deputy Prime Minister is reportedly open to running a future Labour leadership race.
“Health Secretary Wes Streeting is second in our betting to be the UK’s next PM. He previously dismissed claims of a coup against Starmer, branding the rumours “unhelpful”. Streeting has a razor-thin majority in his constituency, however.
“Ed Miliband dreamed of being PM when he led Labour into the 2015 General Election. It didn’t quite go to plan as David Cameron’s Tories bagged a majority. He’s back in the big time, however, in Starmer’s Government and could be seen as a safe pair of hands if the current PM’s forced out.
City AM reports that the previous energy shock experienced by the UK following the Russian invasion of Ukraine in 2022 saw inflation surge to as high as 11 per cent. Following the outbreak of war in Iran and the closure of the Strait of Hormuz earlier this year, oil prices have soared, with the latest polling of market expectations from YouGov/Citi showing analysts believe inflation could climb to as high as 5.4 per cent this year.
However, Panmure chief economist French cautioned against presuming that the identical pattern of 2022’s shock would replicate itself in 2026.
Andrew Bailey, governor of the Bank of England (Image: Bloomberg, Bloomberg via Getty Images)
“Already scarred by the 2022 experience it is possible that economic agents quickly decouple price expectations having ‘seen this movie before'”, French said.
“We would caution however that the shock of fast-moving events must call into question the ability of respondents to accurately process what is to come.
“Amidst the current flux we believe the [Bank of England] will, later this month, set a relatively high bar for a UK interest rate policy move in either direction.”
French said he anticipates rate-setters at the Bank of England’s Monetary Policy Committee (MPC) to maintain interest rates when they convene on 30 April. He indicated that UK inflation would reach a peak of between 3.5 per cent and 4 per cent later this year, considerably lower than the forecasts of several other City analysts, pointing to higher unemployment and the “welcome development” of the government’s more prudent approach in offering energy price support compared to 2022.
“Memories of a UK inflation peak of 11 per cent on a similar energy price shock in 2022 is fresh in investors’ memories – however a softer demand backdrop, more restrictive monetary policy, and the welcome resilience of Sterling should ensure a lower peak,” French said.
“Whether the MPC can return to an easing bias in 2027 will hinge, in large part, on whether the government can ‘hold the line’ on energy bailouts and public sector pay.
“The post-local election politics of the Labour party will be a big factor in whether they can.”