The Bank of England has kept interest rates unchanged at 4.25% in the face of sticky inflationary pressures and mounting geopolitical uncertainty.
The Monetary Policy Committee voted by a majority of six to three in favour of keeping rates unchanged, with the minority in favour of shaving off 0.25 percentage points.
Marcus Jennings, fixed income strategist at Schroders, said market expectations had been low for the Bank of England meeting.
“The bank has recently reiterated a gradual approach to rate cuts and the macro developments since the last meeting have broadly played into this view,” he said, although noting that the vote split “skewed slightly dovish relative to consensus”.
“With a nod to more slack in the labour market, it should give the Bank more confidence to continue easing at a gradual pace later this year.”
The Bank cited ongoing inflation concerns, with the consumer prices index (CPI) holding steady in May at 3.4% – well above the bank’s 2% target. This was largely driven by high services inflation, coupled with renewed geopolitical instability.
The MPC’s caution is further underlined by recent GDP data, with the UK economy contracting by 0.3% in ‘Awful April’ – representing the biggest drop in over a year.
The Bank of England previously cut interest rates to 4.25% in May, down from a peak of 5.25% in July last year.
The Bank’s decision today has not surprised markets, with many predicting the first cut to interest rates will arrive in August, although this will depend on the trajectory of energy prices and whether incoming inflation and wage data provides evidence of cooling cost pressures.
Myron Jobson, senior personal finance analyst at interactive investor, noted that the central bank is adopting a “wait-and-see” approach, “seeking greater clarity on how [US president Donald] Trump’s trade policies will evolve, with an 8 July deadline for completing trade talks with various countries before higher US tariffs take effect”.
But the Bank of England can’t afford to wait too long, or it runs the risk of “missing the opportunity to stimulate economic growth”, he said.
In tandem across the Atlantic, the US Federal Reserve opted to hold rates steady at 4.25% to 4.5%, pointing to inflation risks, geopolitical volatility and the looming expiry of the interim hold on president Trump’s aggressive tariffs.
Isaac Stell, investment manager at Wealth Club, said: “The Fed remains rooted to its wait and see approach. In that environment, the decision to hold rates steady seems like the sensible choice.”