The Bank of England has voted to leave UK interest rates unchanged at 3.75%, a decision widely anticipated by economists. However, the vote was not unanimous, with two policymakers advocating for an increase to 4% while the remaining seven voted to hold.
Bank's Statement on Energy and Inflation
In announcing the decision, the Bank noted that global energy prices have fallen since the previous meeting in response to events in the Middle East, but remain higher than pre-conflict levels and continue to be volatile. The impact of the energy shock on the UK economy remains uncertain. The Bank emphasized that monetary policy cannot influence energy prices but is set to ensure that the economic adjustment occurs in a way that achieves the 2% inflation target sustainably. The required policy stance will depend on the scale and duration of the shock and how it propagates through the economy.
Context of Rate Decisions
The Bank of England had cut rates six times since mid-2024 and was expected to continue doing so before Operation Epic Fury led to Iran choking off oil supplies from the Gulf. This development has introduced further uncertainty into the economic outlook.
