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US and UK central banks expected to keep interest rates on hold amid Iran peace deal
TL;DR
The US and UK central banks are expected to keep interest rates unchanged this week due to a peace deal in the Middle East that may reduce inflationary pressures. The Federal Reserve will maintain its rate at 3.5% to 3.75%, while the Bank of England is likely to hold at 3.75%.
Key points
- US Federal Reserve expected to hold interest rates at 3.5% to 3.75%
- Bank of England likely to maintain interest rates at 3.75%
- Iran peace deal may ease inflationary pressures
Mentioned in this story
Federal ReserveBank of EnglandIranKevin WarshDonald Trump
Central banks in the US and UK are expected to leave interest rates on hold this week as the peace deal in the Middle East is expected to ease inflationary pressures.
The US Federal Reserve is expected to hold its benchmark interest rate at a range of 3.5% to 3.75% on Thursday, in what will be the first policy decision under new Fed chair – and Donald Trump’s pick – Kevin Warsh.
Investors will be closing watching Warsh’s comments in the press conference after the decision, for clues on his views on the likely path for US inflation and the economy more widely. Inflation in the world’s largest economy has jumped from 2.4% in February to a three-year high of 4.2% in May.
Before Trump struck a fresh deal with Iran at the weekend, Warsh was under mounting pressure to raise interest rates – against the president’s wishes – in response to rising prices, but he is expected to say that the opening of the strait of Hormuz will ease inflation over the rest of the year.
The Bank of England (BoE) is expected to hold interest rates at 3.75% despite UK inflation running at 2.8%, above its 2% target.
Analysts said most of the Bank’s nine-member monetary policy committee will adopt a “wait-and-see” approach when they meet on Thursday before reacting to the deal, which triggered an immediate drop in oil prices. Financial markets are now still pricing in one more UK rate rise this year, in December.
James Smith, an economist at ING, said it was uncertain how long a peace deal would hold. “But if the deal endures and oil starts flowing again, UK inflation would likely stay below 4% and enable the Bank of England to avoid a rate hike this summer,” he added.
Last week the European Central Bank (ECB) raised interest rates from 2% to 2.25% after eurozone consumer price inflation rose to 3.2% in May 2026, from 3% in April.
The ECB president, Christine Lagarde, said on Monday that higher energy prices were starting to feed through to other parts of the economy.
“Indirect effects of inflation, we have absolutely started to see that more or less everywhere in recent weeks,” Lagarde told French radio.
Q&A
What interest rates are the US Federal Reserve and Bank of England expected to maintain?
The US Federal Reserve is expected to hold its interest rate at 3.5% to 3.75%, while the Bank of England is likely to maintain its rate at 3.75%.
How might the Iran peace deal affect inflation in the US and UK?
The Iran peace deal is expected to ease inflationary pressures, which could influence the central banks' decisions on interest rates.
Who is the new chair of the US Federal Reserve and what is his expected stance on interest rates?
The new chair of the US Federal Reserve is Kevin Warsh, who is expected to keep interest rates on hold despite previous pressures to raise them.
