Bank of England holds rates at 3.75% amid uncertain inflation outlook – LCP

With inflation coming in lower than expected and the recent Middle East peace deal easing near-term pressure on the energy price outlook, the Bank of England’s Monetary Policy Committee (MPC) kept interest rates on hold at 3.75% today.

The decision came as a 7/2 split, with 2 members voting to raise rates.

Anais Caldwell-Jones, Partner in LCP’s investment team, commented: “The MPC’s decision to hold rates at 3.75% reflects the difficult balance it continues to face. While 12-month CPI inflation came in at 2.8% in May, slightly lower than expected, the upcoming summer energy price cap increase is still likely to put upward pressure on inflation in the months ahead. Uncertainty also remains over whether the interim Middle East peace deal will lead to a lasting easing in energy prices.

“That said, momentum in the labour market has somewhat cooled, with vacancies falling to their lowest level since 2021. This should help limit the risk of a broader spillover into domestic inflation pressures, reducing the immediate need for further tightening.”

She added: “Against a backdrop of continuing inflation pressures and a softening growth outlook globally, the Bank of England is operating in a challenging environment and decisions remain highly dependent on incoming data. While markets have taken some comfort from the Middle East peace deal, any renewed escalation resulting in higher energy prices would strengthen the case for future rate rises.”