The Bank of England’s Monetary Policy Committee (MPC) has opted to hold interest rates at 3.75%, a move that had already been widely priced in by markets.
This marks the fifth successive time the BoE has opted to hold rates this year, as a recent slowdown in inflation was contrasted by whipsawing oil prices.
Andrew Bailey, Governor at the Bank of England, said: “Inflation has fallen faster than we’d expected, but the conflict in the Middle East continues to mean high and volatile energy prices.
“However the conflict unfolds, our job is to make sure any increase in inflation is temporary and that it comes back to our 2% target.”
Isaac Stell, investment manager at Wealth Club, added: “The decision will come as little surprise, with financial markets having largely priced in no change ahead of today’s announcement.
“Inflation eased in June, helped by lower energy prices, but the Bank continues to tread carefully as global events complicate the outlook.”
See also: ‘Short-lived’ boost for Burnham as inflation falls
Charlie Ambler, co-chief investment officer at wealth manager Saltus, said all signs pointed to a hold this week.
“While comfort can be drawn from inflation falling to 2.6% in June, the Bank is right to be cautious as conflict in the Middle East escalates, Andy Burnham takes the helm as prime minister, and new fiscal policy direction remains uncertain.
“While markets will be looking for reassurance amid this uncertain backdrop, any forward guidance will likely remain cautious,” he said.
However, Ed Hutchings, head of rates at Aviva Investors, noted the voting pattern and comments from the MPC demonstrate significant uncertainty.
The MPC voted 6-3 in favour of the hold, with the dissenters voting to hike rates to 4%.
“Yet, even if the BoE do hike, with close to +60bps already priced, the question will be how much further this can go and with gilt yields around 5%, it’s arguable that over the medium-term value is being created.”
Neil Birrell, CIO at Premier Miton, added: “In a week of key central bank policy decisions, the Bank of England, as the US Federal Reserve did, decided to stay with the status quo.
“The vote was closer than expected, indicating the direction of travel for the next likely move in rates: upwards.”
Emma Moriarty, portfolio manager at CG Asset Management, noted that looking further out, markets are currently expecting at least two 25 basis point rises over the next year.
However, this will be restricted by both the UK’s weak growth outlook and an “institutional reluctance” to raise rates ahead of a fiscal announcement from the new government.
“Despite ongoing inflationary pressures from the Iran War, bank rate rises look undeliverable,” Moriarty said.
Rob Morgan, chief investment analyst at Charles Stanley Direct, agreed: “Rate cuts are impossible to justify so long as inflation risks loom large on the horizon, while quelling it with a rate rise would increase borrowing costs and make things even harder for large parts of the economy.”
“Provided energy markets remain contained, the most likely outcome is a prolonged pause at the current 3.75%,” Morgan said.
See also: ‘This was a sloppy hold’: Fed keeps rates unchanged at 3.5-3.75%
