Bank Of England Holds Rate Steady At 3.75%

(RTTNews) - The Bank of England left its key interest rate unchanged on Thursday amid limited evidence of second-round effects but further increase in energy prices raises the prospect of a hike in November.

The Monetary Policy Committee, led by Governor Andrew Bailey, voted 6-3 to maintain the bank rate at 3.75 percent, the lowest rate since June 2023. The move was in line with economists' expectations.

MPC members Catherine Mann, Megan Greene and Huw Pill called for a quarter-point hike as they believed that a proactive increase in the bank rate would help anchor inflation expectations.

The MPC voted unanimously to reduce the stock of U.K. government bond purchases held for monetary policy purposes, and financed by the issuance of central bank reserves, to zero.

BoE policymakers noted that inflation is likely to rise further over coming quarters from 3.1 percent in August. However, they observed that there has been little evidence so far of material second-round effects in price and wage-setting.

Nevertheless, the committee assessed that the risk of material second-round effects increased since July and was likely to increase further to the extent that energy prices remained elevated for longer.

The BoE said the geopolitical environment was highly uncertain and there remained scope for the inflation outlook to change materially as events unfolded.

The Confederation of British Industry expects interest rates to remain at the current level for the rest of the year. However, today's announcement suggests that the case for staying on hold is weakening, especially if energy prices remain high or rise further, CBI Deputy Chief Economist Alpesh Paleja said.

"… with a major bond sell-off pushing up government borrowing costs, and oil prices climbing again, as pipelines come under attack, this was a hawkish hold," British Chambers of Commerce Deputy Director of Economics and Insights David Bharier said.

If inflation surpasses 4 percent, statistically second-round effects are more likely, ING economist James Smith said. If the Bank does decide to hike rates, it won't be because of the economic data between now and November. Instead, it will be an insurance hike, Smith added.