The Bank of England has kept its benchmark rate unchanged at 3.75%, in a decision that split the Monetary Policy Committee 6-3. Catherine Mann joined Huw Pill and Megan Greene in voting for a higher rate, while the majority opted to hold steady. The move came as investors assessed the implications of rising energy prices and the possibility that inflation could stay elevated for longer.
Market attention quickly turned to the Bank’s language on inflation. According to the statement, policymakers said there was little sign so far that the recent jump in oil prices was spilling over into wider price pressures through so-called second-round effects. That assessment appeared to make the overall message somewhat less hawkish than some traders had expected, even though the Bank also cautioned against putting too much weight on early evidence.
Inflation outlook and growth concerns
Rob Wood, chief UK economist at Pantheon Macroeconomics, said the guidance looked slightly less aggressive than before, pointing to the Bank’s reference to continued signs of underlying disinflation in recent data. Investors responded by nudging up the odds that rates will remain unchanged at the next meeting in September. At the same time, the Bank said inflation is likely to rise later this year, while UK economic growth is expected to slow to a halt in the current quarter.
The three dissenting votes underline the tension facing policymakers as they balance weaker growth prospects against renewed inflation risks linked to the conflict in Iran and its effect on energy markets. Mann said the changing geopolitical backdrop, including the widening Middle East conflict and the volatility in energy prices, was central to her decision to back a rate increase. Her comments suggested concern that inflation has already remained above target for five years and that policy credibility matters when price pressures reappear.
Source: theguardian.com
