Bank of England holds rates at 4.25%
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The news: The Bank of England held rates steady in a more divided vote than expected as ratesetters weighed the UK’s weak growth, softening jobs market and persistent inflation against rising geopolitical instability.
The numbers: The central bank kept rates at 4.25%, on course for a potential quarter-point cut in August. Six of the BoE’s nine Monetary Policy Committee members voted to leave rates unchanged, while three voted in favour of an immediate quarter-point reduction.
Traders fully priced in another two quarter-point reductions this year, seeing the yield on 10-year gilts trading around 4.52%, compared to 4.53% earlier. The pound dropped 0.1% to USD1.341.
The context: The decision followed the BoE’s quarter-point reduction in May, adopted as concerns over Trump’s trade tariffs flooded the economy.
“Interest rates remain on a gradual downward path,” said Governor Andrew Bailey. “The world is highly unpredictable. In the UK we are seeing signs of softening in the labour market. We will be looking carefully at the extent to which those signs feed through to consumer price inflation.”
The decision to hold rates was widely expected as policymaker grapple with sticky inflation and the escalating conflict between Iran and Israel, and the potential impact it may bear on oil prices. The BoE said that there has been a sharp rise in oil prices since Israel’s attacks on Iran last week, stating that the Committee would “remain vigilant about these developments and their potential impact on the UK economy.”
The sources: Bank of England, Bloomberg, FT
