Key facts
- Bank of England held interest rates at 3.75% on Thursday.
- The Monetary Policy Committee voted 6-3 to maintain the Bank Rate.
- Three MPC members voted to raise the Bank Rate to 4%.
- Governor Andrew Bailey warned that persistent conflict in the Middle East could necessitate policy tightening.
- Deputy Governor Sarah Breeden noted risks of domestically generated price pressures emerging.
- External MPC member Catherine Mann argued for raising Bank Rate as a risk-management strategy.
The Bank of England maintained its benchmark interest rate at 3.75% on Thursday, with the Monetary Policy Committee voting 6-3 to hold rates steady. Three members of the committee favored a 25-basis-point increase to 4%, citing concerns over persistent inflation and the potential for second-round effects from elevated energy prices.
Governor Andrew Bailey noted that while financial conditions would continue to push down inflation, prolonged conflict in the Middle East could increase the risk of second-round effects, potentially requiring policy tightening. Deputy Governor Sarah Breeden echoed this sentiment, stating that if risks to inflation crystallize, Bank Rate may need to respond. Deputy Governor Dave Ramsden pointed to resilient activity and potential upward pressure on food prices as reasons for concern.
External MPC member Catherine Mann argued that raising Bank Rate was a better risk-management strategy given uncertainty about inflation dynamics and second-round effects, warning that delaying action could lead to embedded inflation requiring tighter policy later. Conversely, external member Swati Dhingra voted to wait, citing the already high level of Bank Rate compared to peers, rapid tightening of financial conditions, and subdued domestic demand.
In a separate development, the Bank of England announced it would pause gilt auctions while reviewing a model for selling gilts to the government.