The Bank of England’s (BoE’s) Monetary Policy Committee (MPC) voted six to three in favour of leaving Bank Rate unchanged at 3.75% at its meeting on 30 July, with policymakers indicating rates could rise if inflationary pressures linked to the Middle East conflict intensify.

BoE Governor Andrew Bailey said, “Inflation has fallen faster than we’d expected, but the conflict in the Middle East continues to mean high and volatile energy prices. That will cause inflation to rise again later this year. However the conflict unfolds, our job is to make sure any increase in inflation is temporary and that it comes back to our 2% target.”

The decision comes as the new government looks to balance easing inflation against growing uncertainty in the global economic outlook ahead of the Budget on 28 October. Recent public-finance figures have provided some encouragement, although the government’s fiscal position remains challenging.

Government borrowing, the difference between public spending and tax income, totalled £16bn in June. This was £7.9bn lower than a year earlier and slightly below the £16.3bn forecast by the Office for Budget Responsibility (OBR). Borrowing for the financial year to date reached £57.6bn. Although this was £3.7bn below the same period last year, it remained £2.7bn higher than the official forecast. The Office for National Statistics (ONS) also noted that total government debt remained high by historical standards and is close to the annual value of the UK economy.

Separate labour-market data provided a similar mixed picture. with unemployment unchanged and ONS describing conditions as ‘relatively steady.’ Together, the figures support expectations that the BoE will keep rates on hold while assessing whether inflation continues to ease without a more significant slowdown in growth or employment. A recent Reuters poll of economists suggested rates are likely to remain unchanged for an extended period, with most respondents not expecting any move before mid-2027.

UK consumer confidence saw its biggest monthly rise for nearly three years in July, helped by optimism about the new government, warm weather and the FIFA World Cup.

GfK’s Overall Index Score increased by six points to -17, its largest monthly improvement since November 2023. Nevertheless, confidence has been in negative territory for more than a decade, due to years of high inflation and cost of living pressures.

Confidence in the UK economy over the year rose by 10 points to -39, while expectations for the coming 12 months increased eight points to -28. The survey was carried out between 1-14 July, before Andy Burnham took office, meaning the responses reflected expectations about the Prime Minister more than reactions to government policies.

Neil Bellamy, Consumer Insights Director at GfK, described it as “a wave of optimism”, adding: “The sense of a fresh start following the appointment of a new Prime Minister surely accounts for some of this bounce.” Bellamy said that hopes of a resolution to the Middle East conflict, lower fuel prices and the World Cup had also supported sentiment. Consumers also appeared more willing to spend, with GfK’s Major Purchase Index climbing eight points to -12.