The Bank of England maintained its benchmark interest rate at 3.75 percent on Thursday, with policymakers balancing above-target inflation against signs of economic weakness in the United Kingdom.
The Monetary Policy Committee voted 7-2 in favor of holding rates unchanged. Two members, including Chief Economist Huw Pill and external member Megan Greene, dissented and favored a 25 basis-point increase to 4 percent.
The decision aligned with market expectations, according to a Reuters survey of economists.
In its policy statement, the Bank noted that consumer price inflation had declined to 2.8 percent in May from previous levels, though the figure remained above the central bank’s 2 percent target. The statement warned that inflation could rebound later in the year as the impact of higher energy prices filters through the economy.
“The MPC judges that monetary policy is set to return inflation to the 2 percent target sustainably,” the statement said. “The appropriate policy stance will depend on the evolving outlook for inflation and activity.”
Global energy prices have moderated following progress in diplomatic negotiations between the United States and Iran, the statement noted. However, energy costs remained elevated compared to pre-conflict levels and continued to present risks to the inflation outlook.
Bank of England Governor Andrew Bailey said recent declines in oil prices were encouraging but emphasized that uncertainty persisted. “The situation remains unpredictable, and energy prices clearly face risks of remaining elevated for an extended period,” Bailey said in a statement accompanying the decision.
The dissenting members argued that the uncertainty surrounding potential second-round effects on pricing and wages warranted a rate increase as a risk management measure.
Recent economic data showed mixed signals. While first-quarter GDP expanded 0.6 percent quarter-on-quarter, April saw a 0.1 percent contraction. The unemployment rate stood at 4.9 percent as of April, with job vacancies declining.
The pound fell modestly against the dollar following the announcement, trading near its lowest level since April.
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