LONDON: The Bank of England (BoE) kept its benchmark interest rate unchanged at 3.75% on Thursday, matching market expectations, while warning that rising energy prices and geopolitical uncertainty continue to pose risks to inflation.
The BoE’s Monetary Policy Committee (MPC) voted 6-3 in favor of maintaining the Bank Rate. Committee members Megan Greene, Huw Pill, and Catherine Mann dissented, calling for a 25-basis-point increase.
The central bank said all MPC members agreed that risks to energy prices remain tilted to the upside, despite recent progress in reducing inflation.
The decision followed a decline in the U.K.’s annual inflation rate to 2.6% in June, its lowest level in 15 months.
Greene argued that inflation has remained above the BoE’s target for nearly five years and warned that supply-side risks including potential disruptions in the Red Sea and artificial intelligence-related hardware shortages could push prices higher.
Pill also cautioned that prolonged uncertainty over energy markets makes it difficult to calibrate monetary policy and supported a rate hike to reinforce the bank’s commitment to controlling inflation.
Following the announcement, the British pound edged 0.08% higher against the U.S. dollar to $1.3376. Analysts said the increase in dissenting votes suggests growing concern within the committee over inflation risks.
More read, Bank of England stress test reveals all eight major UK banks have enough capital
Economists at Aberdeen described the decision as a “more hawkish hold” than expected, while Goldman Sachs Asset Management said the BoE is comfortable keeping rates steady for now but warned that any sustained escalation in Middle East tensions could revive the possibility of a rate increase at its September meeting.
