Bank of England keeps rates on hold amid volatile energy markets

Traders Union
All News
Central Banks
Bank of England holds rates

Highlights

The BOE held the bank rate at 3.75% in a 6-3 vote.
Three policymakers favored an immediate quarter-point increase.
Energy prices remain the main threat to the inflation outlook.

Bloomberg reported that the Monetary Policy Committee voted 6-3 to leave borrowing costs unchanged. Chief Economist Huw Pill and external members Megan Greene and Catherine Mann supported a quarter-point increase to 4%, compared with two votes for a rise at the previous meeting.

Energy prices complicate the outlook

The bank retained guidance that it “stands ready to act,” reflecting uncertainty over oil and natural-gas prices. Energy markets were already trading substantially above the assumptions used in the central forecast shortly before the decision.

The BOE said domestic inflation pressures were showing clear signs of easing, with little evidence so far that higher energy costs had translated into broader wage and price increases. Governor Andrew Bailey said holding rates was appropriate because global conditions had become more inflationary while domestic conditions appeared comparatively benign.

Consumer-price inflation has fallen to 2.6%, but the central bank expects it to rise later this year as higher fuel and household energy costs filter through the economy. The BOE said the risk of second-round effects would increase the longer elevated energy prices persist.

Inflation could reach 4.5% in an adverse scenario

The bank’s central projection shows inflation peaking at 3.2% near the end of 2026 before returning toward the 2% target next year. Under an adverse scenario in which crude oil remains above $100 a barrel and natural gas prices rise sharply, inflation could reach 4.5% in the second quarter of 2027.

A milder scenario based on a faster end to the Middle East conflict would put the inflation peak at about 3%. Economic growth remains weak under all three paths, hovering near 1% in 2026 and 2027 before improving in 2028.

Rate path hinges on the war

The decision leaves the BOE with flexibility before its September meeting. Weak hiring, softer private-sector wage growth, and restrictive financial conditions give officials time to assess whether the energy shock will become embedded in the domestic economy.

The policy divide nevertheless signals that rate increases are again a credible option. Britain’s outlook now depends less on current inflation than on the duration of the conflict and whether volatile energy costs spread into wages, services, and household expectations.

We also reported the Federal Reserve holds interest rates steady.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.