Bank committee votes unanimously for rate hold – Daily Business

War in the Middle East is impacting energy prices

The Bank of England’s nine-member monetary policy committee voted unanimously to hold interest rates at 3.75%.

It was widely expected since war broke out in Iran, but the lack of any dissent will be seen as a reflection of how the war’s impact outweighed any attempt to boost the economy, particularly after poor employment data which showed the UK jobless rate at 5.2%, the highest since Covid. 

As recently as February, economists had widely expected further cuts to interest rates this year amid falling inflation.

But fears the conflict will drive a renewed period of higher inflation in the UK prompted the Bank to put any further cuts on hold, with some saying the next move could be upward if the war continues.

The Bank said the conflict in the Middle East has caused a significant increase in global energy and other commodity prices, which will affect households’ fuel and utility prices and have indirect effects via businesses’ costs.

Prior to this, there had been continued disinflation in domestic prices and wages. CPI inflation will be higher in the near term as a result of the new shock to the economy.

It accepted that monetary policy cannot influence global energy prices but aims to ensure that the economic adjustment to them occurs in a way that achieves the 2% target sustainably.

The MPC is also assessing the implications for inflation of the weakening in economic activity that is likely to result from higher energy costs.

Governor Andrew Bailey said: “Large movements in energy prices have resulted from events in the Middle East and uncertainty over the duration of supply disruptions.

“Holding bank rate at this meeting is appropriate. I will be monitoring developments extremely closely and stand ready to act as necessary to ensure that inflation remains on track to meet the 2% target in the medium term.”

Luke Bartholomew, deputy chief economist, at Aberdeen Group, said: “What is striking is that all policymakers voted to keep policy on hold, which shows that even the more dovish members of the committee want to see how this conflict plays out before cutting again.

“With today’s labour market data showing wage growth is continuing to moderate, there is certainly a strong case for bringing rates down eventually.

“But with the inflation outlook now looking more challenging, the Bank will be focused on keeping inflation expectations pinned down. So while the hurdle to a return to rate hikes is very high, the economy could be facing a long wait until the next cut.”  

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