LONDON — The Bank of England kept its benchmark interest rate unchanged on Thursday, citing persistent inflation risks and uncertainty surrounding energy markets, while investors assessed the economic implications of a recent U.S.-Iran agreement that has helped ease pressure on global oil prices.
The central bank’s Monetary Policy Committee voted 7-2 to maintain the Bank Rate at 3.75%, according to minutes released after its June policy meeting. The decision marked the continuation of a holding pattern adopted in recent months as policymakers weighed inflation concerns against signs of a slowing economy.
Governor Andrew Bailey said the Bank had room to wait for additional economic data before adjusting policy. Officials noted that energy prices had fallen following diplomatic progress between Washington and Tehran, reducing some immediate inflation concerns. However, the Bank said risks remained elevated because energy costs were still higher than levels seen before the Middle East conflict escalated earlier this year.
“The outlook remains uncertain,” Bailey said, according to the Bank’s statement, adding that policymakers would continue to monitor developments in energy markets and their effect on inflation.
Financial markets reacted cautiously to the decision. Sterling weakened against the U.S. dollar following the announcement, while yields on short-term British government bonds edged higher. The FTSE 100 index also moved lower during trading as investors evaluated the Bank’s outlook and the prospect of future rate moves.
The decision came days after the United States and Iran announced a framework agreement aimed at reducing tensions and restoring stability to energy markets. Oil prices declined after details of the accord emerged, easing concerns that disruptions in the Strait of Hormuz could prolong inflationary pressures in Europe and elsewhere.
Despite the improvement in energy markets, the Bank said inflation remains above its 2% target. Consumer price inflation stood at 2.8% in May, according to official data cited by policymakers. The Bank now expects inflation to peak at slightly above 3.25% later this year, lower than earlier projections but still above target.
Two members of the committee favored raising rates by a quarter percentage point, arguing that inflation expectations could become more entrenched if price pressures persist. The majority, however, concluded that maintaining current policy was appropriate given uncertainties surrounding growth, employment and energy costs.
The Bank’s decision followed similar moves by other major central banks, including the U.S. Federal Reserve, which also left rates unchanged this week. Investors will now focus on upcoming economic data and future policy signals from the Bank as markets continue to assess the economic effects of the Iran agreement and broader global conditions.
