Bank of England holds rates at 3.75% as two policymakers vote for hike
10 reported
The Bank of England voted to leave UK interest rates on hold at 3.75%, a decision widely expected by economists. The vote was not unanimous, with two policymakers favoring a hike to 4% while the other seven voted to hold. The Bank stated that global energy prices have fallen since the previous meeting in response to events in the Middle East but remain higher than pre-conflict and volatile. The Bank also lowered its inflation forecast, now predicting CPI inflation will be a little under 3% in the third quarter and pick up to a little over 3.25% in Q4, a downgrade from its April forecast. The Bank described the Middle East conflict as the “dominant source of uncertainty for the inflation outlook.” Following the decision, the pound fell to its lowest level against the US dollar in over two months, dropping 0.6% to $1.3207. Money markets are still pricing in one interest rate hike by the end of the year.
What’s reported
The Bank of England voted 7-2 to leave interest rates at 3.75%.
Two policymakers, Huw Pill and Megan Greene, voted to raise rates to 4%.
The Bank said global energy prices have fallen since the previous meeting but remain higher than pre-conflict and volatile.
The Bank lowered its inflation forecast: CPI inflation expected to be a little under 3% in Q3 and a little over 3.25% in Q4.
The Middle East conflict is the “dominant source of uncertainty for the inflation outlook.”
The pound fell 0.6% to $1.3207 against the dollar, the lowest since April 6.
Money markets are still pricing in one rate hike by the end of the year.
ING’s James Smith predicts the next move will be a rate cut in 2027.
Capital Economics’ Ruth Gregory said the Bank is talking “a good hawkish game” but is unlikely to deliver a hike.
Moody’s Analytics’ David Muir suggested the Bank could avoid a rate hike this year unless the US-Iran peace deal falters.
Key figures
Andrew Bailey, Bank of England governor
Huw Pill, Bank of England chief economist
Megan Greene, Bank of England policymaker
James Smith, ING economist
Ruth Gregory, deputy chief UK economist at Capital Economics
David Muir, senior economist at Moody’s Analytics
Daniela Hathorn, senior market analyst at capital.com
Miles Celic, CEO of TheCityUK
Kemi Badenoch, Tory leader
Sources: The Guardian
