Bank of England kept rates on hold, as expected

The Bank of England kept interest rates unchanged at 3.75% in its July policy meeting, as widely expected, but MPC members voted 6-3 instead of expected 7-2 configuration to back today’s decision, expressing more divided stance of policymakers, mainly due to increased uncertainty over fresh escalation of the conflict in the Middle East.

While majority of policymakers see no urgency for raising interest rates and support wait-and-see mode, hoping that inflation will not exceed the 2% target by too much, three of them backed 25 basis points hike, considering more significant impact from fragile geopolitical situation.

Unchanged interest rates will also provide relief for new Prime Minister Andy Burnham who has prioritized cost-of-living measures, including scrapping a tax on household electricity bills which would help to lower inflation.

The central bank expects inflation to rise to 3.2% later this year after hitting15-month low of 2.6% in June and staying above target until early 2028 when it would dip below 2%, with projections based on expectations of rise of energy prices.

BoE’s Governor Bailey said in the post-meeting press conference that holding Bank Rate is appropriate as global conditions look to be more uncertain and inflationary, while domestic conditions are on balance more benign as regards the prospects for inflation.