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P.ublished 30th April 2026
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Bank Is Operating On A Knife-Edge
Image by Pete Linforth from Pixabay
“By holding rates today, the Bank of England is betting that the shock to energy markets will be temporary and won’t cause a broader, more persistent price spiral of the sort we witnessed in 2022.
“Whether that’s the case or not remains to be seen. But regardless, many households are already struggling. Scottish Friendly’s Family Finance Tracker research found 55 per cent of people say prices are still noticeably rising every time they shop, highlighting just how persistent cost pressures remain for many.
“The Bank is operating on a knife-edge. Hold rates for too long and the risk is that inflation runs away like it did following the pandemic. But move too soon and rate-setters risk squeezing family finances in an already stuttering economy.
“For households, while savings rates remain relatively attractive for now, rising inflation means the real value of cash savings can still be eroded. Therefore, strengthening financial resilience by reducing debt, building savings or considering longer-term investments, could be considered viable options.”
"The Bank of England was right to keep interest rates on hold today. There is huge uncertainty, reflected in the three different scenarios discussed in the accompanying Monetary Policy Report. But the Committee has judged that the upside risks to inflation from higher commodity prices are being offset, at least for now, by the weakness of the labour market and the downside risks to economic growth.
"The Bank now expects CPI inflation to dip from 3.3% in March to 3.0% in April, then rise again to peak at a little over 3.5% in the autumn. That should just about be low enough to keep interest rates on hold, especially with unemployment forecast to pick up again too.
But there is one other factor which deserves more attention. This is that growth in broad money supply is also relatively subdued, especially compared to the surge which fuelled the inflation spike in 2022.
"The Bank’s latest Monetary Policy Report does at least note that the ratio of broad money to nominal GDP has fallen further below its pre-pandemic trend. However, none of the MPC members mention this in their comments."
“It is no surprise that the Bank of England has kept interest rates on hold, given expectations of a near-term rise in inflation. Prior to the escalation in the Middle East, the Monetary Policy Committee had been widely expected to cut rates further – but that now looks unlikely.
“That said, the MPC is navigating two-sided risks to inflation. Fuel prices and input costs have spiked, as reflected in our business surveys. Some measures of households’ inflation expectations have also moved higher, raising the risk of renewed knock-on effects on wage and price setting that could keep inflation above target for longer.
“However, this is not a repeat of the 2022–23 inflation shock. The labour market is now looser and there is greater slack in the economy, which should keep a lid on both wage growth and domestic price pressures – though the extent of that effect remains uncertain.
“Ultimately, different members of the MPC are placing varying weight on these competing forces. How they evolve in the months ahead – particularly alongside developments in the conflict – will be key in shaping the path for monetary policy. With uncertainty still high, the MPC is likely to remain on hold for some time yet.”