The Bank of England has decided to keep its key interest rate unchanged, choosing to hold borrowing costs steady rather than move them. The decision had been widely expected, with markets pricing in a hold after inflation came in softer than anticipated and growth in private sector pay eased. Policymakers opted to leave policy where it is at a moment of considerable economic uncertainty.
The decision came from the Bank's nine-member Monetary Policy Committee, which voted seven to two in favour of holding rates. That marked a more split decision than the committee's previous meeting, when the vote had been eight to one. The narrower margin pointed to growing differences among policymakers over what should happen next.
Inflation currently stands at 2.8%, above the Bank's 2% target, and is expected to climb further in the second half of the year. The Bank trimmed its forecast for inflation in the final quarter to a little over 3.25%. Officials acknowledged that price pressures remain materially above the level they are aiming for.
Part of the expected rise in inflation is effectively built in, because the household energy price cap is due to be reset higher in July. That increase is likely to push inflation up through the summer and into the autumn. Analysts cautioned that higher energy costs will take time to feed through into household fuel bills in the months ahead.
The decision came against the backdrop of easing tensions following the agreement between the United States and Iran, which is expected to reopen the Strait of Hormuz and allow oil to flow more freely again. Governor Andrew Bailey pointed to a marked fall in energy prices in recent days. Some analysts suggested the British economy had weathered the disruption of the conflict better than had been feared.
Within the committee, opinions diverged on the path forward. Deputy Governor Dave Ramsden said he continued to place about equal weight on two scenarios materialising after the summer. External member Alan Taylor said he could not see a case for tightening now and described an active hold as reasonable, while Megan Greene argued that a proactive increase in rates could help anchor inflation expectations.
The Bank's rates remain higher than those in the euro area, where the European Central Bank has been raising borrowing costs. With a closely watched by-election taking place the same day and lingering questions over the direction of government policy, officials pointed to a backdrop of political and external uncertainty. The Bank signalled that much would depend on whether the easing in global tensions persists and how price pressures evolve in the coming months.