Bank Of England Holds Key Rate In 6-3 MPC Split

(RTTNews) - The Bank of England maintained its interest rate in a split vote as renewed tensions in the Middle East reignited fears of high inflation becoming persistent.

The Monetary Policy Committee, led by Governor Andrew Bailey, voted 6-3 to hold the bank rate at 3.75 percent, which is the lowest rate since June 2023.

Previously, the central bank had reduced the rate by 25 basis points each in August and November last year.

A majority of MPC members said holding the interest rate steady, combined with the significant tightening of financial conditions that had occurred since the conflict started, was providing sufficient insurance against the upside risks to inflation stemming from fluctuations in energy prices.

This time, policymaker Catherine Mann joined peers Megan Greene and Huw Pill in seeking a quarter-point rate hike. The trio felt that a proactive increase in Bank Rate would reduce the probability of second-round effects setting in.

The BoE announcement came a day after the U.S. Federal Reserve left its interest rate unchanged for the fifth consecutive meeting, and three members voted for a rate hike.

The U.K. central bank expects inflation to rise to 3.2 percent in October and November before easing a little.

Underlying economic growth is projected to weaken slightly in the coming quarters as subdued momentum persists and the effects of the Middle East conflict weigh somewhat on demand, the BoE assessed. Underlying growth is forecast to ease to around zero percent in the third quarter, the bank said.

Headline GDP growth is expected to have been higher than underlying growth, at 0.3 percent in the second quarter of 2026.

"The upshot is that unless the situation in the Middle East gets particularly dire, we think the Bank will continue to keep rates on hold through 2026, before cutting rates twice from next spring," ING economist James Smith said.

The Confederation of British Industry economist Alpesh Paleja said interest rates will likely remain on hold for now as inflation and wage data come in lower than previously expected.

Moreover, the BoE may also wait for greater clarity on the fiscal outlook as we head towards the new Chancellor's first Budget in the Autumn, Paleja added.