The Bank of England has elected to hold its key interest rate at 3.75% as the central bank grapples with high inflation and a weak economy.
Holding interest rates at current levels was widely expected by economists polled by Reuters (TRI). The decision was supported by seven of nine Bank of England committee members.
Bank of England Chief Economist Huw Pill and Megan Greene, an external member of the rate-setting Monetary Policy Committee, were the two dissenters at the latest policy meeting.
Pill and Greene each voted to raise the Bank of England’s “base rate” by 25-basis-points to 4%.
The decision to hold interest rates at current levels comes amid higher energy costs in the wake of the Iran war. Rising energy prices have pushed inflation higher in economies worldwide.
The United Kingdom, a net energy importer, is vulnerable to price shocks from rising crude oil and natural gas.
The British inflation rate was at an annualized rate of 2.8% in May of this year, above the Bank of England’s 2% target.
At the same time, data published in the last week showed that the U.K. economy shrank by 0.1% in April.
The Bank of England expects inflation to continue moving higher as energy prices carry knock-on effects to the broader economy.
Despite the U.S. and Iran reaching what appears to be a lasting peace deal, markets are pricing in an interest rate increase from the Bank of England later this year.
In recent days, the Bank of Canada and the U.S. Federal Reserve also opted to keep their benchmark interest rates unchanged as they deal with rising inflation and softening economies.
However, a week ago, the European Central Bank (ECB) became the first major central bank to raise its key interest rate in response to inflation sparked by the Iran energy crisis.
The Bank of Japan on June 16 raised its trendsetting interest rate to a 31-year high of 1% as it sees consumer prices rise due to soaring energy costs.
The Bank of England next decides on interest rates July 29.
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