The Bank of England's Monetary Policy Committee voted 8–1 to hold the Bank Rate at 3.75% at its May 1 meeting, with only one external member voting for an immediate cut. The decision reflected the MPC's cautious approach amid persistent domestic inflation and the spillover effects of elevated global energy prices.
New Inflation Framework
In a significant methodological shift, the BoE abandoned its traditional single-path inflation forecast in favour of a three-scenario model that explicitly accounts for divergent energy price trajectories linked to the Middle East conflict. The three scenarios range from a rapid resolution of the Hormuz standoff (BoE rate cuts resume by Q4 2026) to a prolonged blockade (further hikes possible in H2 2026).
Four MPC members signalled they could support rate increases if energy shocks were to intensify and feed through to second-round wage pressures. The committee pledged to "closely monitor" developments in global energy supply.
GBP/USD Reaction
GBP/USD jumped to 1.3620 — its highest level since February 2026 — on the hawkish tone embedded in the statement. Sterling extended a strong month in which it gained 2.2% against the dollar, outperforming all other G10 currencies except the Swiss franc.
The pound's resilience reflects both BoE hawkishness and dollar weakness stemming from the divided FOMC vote. A sustained break above 1.3650 would open the way toward the 2025 peak at 1.3880.