Three MPC members voted to raise Bank Rate by 0.25 percentage points to 4 per cent. The decision comes as crude and refined energy prices remain volatile and above pre-conflict levels following events in the Middle East, leaving the impact of the energy shock on the UK economy uncertain.
The Bank of England kept Bank Rate at 3.75 per cent after a 6-3 MPC vote, with three members backing a rise to 4 per cent.
Volatile Middle East-linked energy prices may lift UK CPI later this year, affecting costs and demand visibility for apparel and textile supply chains.
The MPC sees upside inflation risks but little evidence so far of wage and price second-round effects.
Consumer price index (CPI) inflation has fallen to 2.6 per cent since the previous meeting, although it is expected to rise later this year as higher energy prices continue to pass through, the Bank of England said in its July 2026 Monetary Policy Summary and minutes.
The MPC said monetary policy cannot influence energy prices, but is being set to ensure the economic adjustment is consistent with achieving the 2 per cent inflation target sustainably.
The policy stance needed to meet that target will depend on the scale and duration of the energy shock and how it spreads through the economy, including through financial conditions, the bank added in its monitary policy summary.
The committee judged that risks to the inflation outlook are tilted to the upside relative to the central projection in the July Monetary Policy Report, while noting that the outlook could still change materially as events in the Middle East unfold.
For textile and apparel supply chains serving the UK market, the minutes point to continued uncertainty around energy-driven input costs, consumer-price pressures and financing conditions. The MPC said the risk of material second-round effects in price and wage-setting is greater the longer higher energy prices persist, although there is little evidence so far that such effects are emerging.
The committee also noted clear signs of underlying disinflation in recent data. Loose labour market conditions, and higher interest rates faced by households and businesses than before the conflict, are expected to reduce inflation over time.
Energy prices remained the dominant source of uncertainty for the inflation outlook. As at close of business on July 28, the Brent crude front-month future was $84 per barrel and the UK front-month natural gas future was 136 pence per therm.
In the June CPI outturn of 2.6 per cent, motor fuel prices contributed 0.6 percentage points to CPI inflation.
The MPC said there had been sustained disinflation before the conflict. Although CPI inflation remained above the 2 per cent target, it had fallen since the April report. Slowing wage growth and a soft labour market had supported the easing of domestic inflationary pressures.
Beyond the energy shock, the MPC said global factors pointed to an environment that could be more inflationary in future. Some factors, such as trade diversion linked to higher global trade tariffs, appeared to be exerting downward pressure on UK inflation at present, while others posed upside risks, including strong demand for AI-related components creating sector-specific price pressures.
The July report’s central projection was conditioned on the 15-day average of energy price paths to July 20 and assumed moderate additional second-round effects.
The adverse scenario was consistent with repeated re-escalations of the conflict with no clear resolution, persistently higher energy prices and much stronger second-round effects.
The MPC said it stands ready to act as necessary to ensure CPI inflation remains on track to meet the 2 per cent target in the medium term.
Fibre2Fashion News Desk
