The Bank of England has kept interest rates unchanged at 3.75% for a further meeting, maintaining what officials describe as an “active hold” stance as policymakers weigh lingering inflation pressures against a cooling economy and uncertain global energy outlook.
The Monetary Policy Committee voted 7-2 to hold rates steady, matching expectations in a Reuters poll. External members Megan Greene and Chief Economist Huw Pill again called for a 25-basis-point increase, arguing that inflation risks remain too elevated to justify patience. However, most committee members opted to wait for clearer evidence before adjusting policy.
Governor Andrew Bailey and the majority of policymakers signalled that current conditions still justify caution. Bailey said the effects of higher energy prices over recent months are still feeding through the economy, warning that inflationary pressure has already built into the system even as headline figures stabilise.
The decision comes at a time of diverging global monetary policy. The European Central Bank and Bank of Japan have both tightened policy in recent days, while the US Federal Reserve, under its new chair Kevin Warsh, has indicated that further rate increases may also be on the horizon later this year.
In the UK, attention has been focused on energy markets following a tentative truce between the United States and Iran, which could eventually lead to the reopening of the Strait of Hormuz and lower global oil prices. Britain, which relies heavily on imported energy, could benefit if the agreement holds. However, the Bank said it was too early to assume that inflation risks have passed.
Bailey noted that recent increases in energy costs mean higher prices are still working their way through the economy. The Bank now expects inflation to peak above 3.25% in the final quarter of this year, up from 2.8% in May, although this forecast is slightly lower than earlier projections made in April.
Economic growth expectations were revised marginally upward. The Bank estimates underlying quarterly growth at around 0.2%, an improvement from the 0.1% forecast previously, even though output fell slightly in April.
Within the committee, concerns remain about inflation expectations among households. Pill and Greene pointed to survey data showing expectations at their highest level since 2009, arguing that a pre-emptive rate rise could help anchor sentiment. Greene said acting sooner could prevent inflation from becoming embedded in wage and pricing behaviour.
Other members, including Catherine Mann, acknowledged the risks but concluded there is still time to assess incoming data. Mann noted that while inflation pressures are significant, a decisive policy move could still be made quickly if needed.
Deputy Governor Clare Lombardelli highlighted the risk of second-round effects from sustained high energy prices but said current evidence suggests pass-through remains broadly in line with historical patterns.
The decision underscores the Bank’s balancing act as it navigates persistent inflation, uneven growth and the uncertain impact of global energy developments.
