The Bank of England kept its policy rate steady at 3.75 percent on Thursday, cautioning that Middle East tensions have injected “highly uncertain” volatility into global energy prices.
The Monetary Policy Committee voted 8-1 to hold the Bank Rate, with one member advocating a 25-basis-point hike to 4 percent, per the bank’s statement.
Monetary policy can’t sway energy prices directly, the BoE noted, but it will be calibrated to guide the economy’s adjustment toward sustainably hitting the 2 percent inflation target. “The policy stance required to achieve this will depend on the scale and duration of the shock, and how it propagates through the economy,” it said.
Read more: BoE faces pressure as U.K. inflation nudges higher to 2.2 percent in July on energy cost
U.K. inflation hits 3.3 percent
U.K. CPI inflation has climbed to 3.3 percent and may peak higher later this year as energy cost pass-throughs ripple wider, the bank projected—drawing on real-time data amid the Iran war’s oil disruptions.
It flagged risks of “material second-round effects” in pricing and wages, necessitating policy countermeasures.
Offsetting this, a softening labour market and decelerating economy could naturally temper inflation, while post-conflict financial tightening aids the cooldown.
“Taking all the risks to the economic outlook into account, the Committee judges that it is appropriate to maintain Bank Rate at this meeting,” the statement further said.
The MPC pledged vigilant tracking of Middle East developments and their U.K. fallout, emphasizing data-dependent flexibility in line with global central bank pauses.
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