Bank of England Governor Andrew Bailey said the central bank is keeping the Bank Rate at 3.75% [1].
This decision maintains a steady borrowing cost for the fourth consecutive meeting [4]. The hold comes as the bank balances falling oil prices against persistent inflation that remains above the official target, affecting mortgage holders and corporate borrowing across the UK.
Speaking on CNBC’s “Squawk on the Street” in New York and during a press conference in London, Bailey said that while recent drops in oil prices are "encouraging", high energy prices from the Iran war have left "inflationary pressure in the pipeline" [1]. He said that energy prices have stabilised after the Iran-Russia war, which provided the confidence to maintain the current rate [1].
Despite the stability in energy costs, the Governor indicated he is not complacent about the current economic trajectory. Bailey said, "I am not happy that the rate of Consumer Prices Index (CPI) inflation is still above the Bank’s 2% target" [2].
The bank's decision to hold the rate reflects a cautious approach to the UK's recovery. While some data suggests inflation is improving, the central bank remains focused on the risk of price spikes stemming from geopolitical instability. The 3.75% rate is intended to cool the economy without triggering a severe recession, a delicate balance for the Monetary Policy Committee.
Bailey said that the pipeline of inflation remains a primary concern for the bank. The Governor said the stability of energy prices was a key factor in the decision to avoid a rate hike or cut during the May 2024 meeting [1].
“I am not happy that the rate of Consumer Prices Index (CPI) inflation is still above the Bank’s 2% target.”
The Bank of England is signaling a 'wait-and-see' approach to monetary policy. By holding rates for four consecutive meetings, the bank is attempting to suppress inflation toward the 2% target without over-tightening. However, the explicit mention of the Iran-Russia war highlights that the UK economy remains highly vulnerable to external geopolitical shocks, meaning rate cuts may be delayed if energy markets volatilize again.
