The Bank of England has kept interest rates unchanged at 3.75 per cent as policymakers warned that uncertainty over energy prices and inflation remains a major threat to the UK economy.
The Monetary Policy Committee voted by seven to two to leave borrowing costs untouched at its latest meeting, with two members — Megan Greene and Huw Pill — arguing for a quarter-point increase to four per cent.
The decision comes as the Bank continues to assess whether recent global shocks, particularly rising energy costs linked to instability in the Middle East, could feed into inflation and delay further rate cuts.
Consumer price inflation stood at 2.8 per cent in May, unchanged from April but down from 3.3 per cent in March, suggesting price pressures are gradually easing but remain above the Bank’s two per cent target.
The Committee said it remained ready to adjust policy if necessary to ensure inflation returns sustainably to target over the medium term.
Energy markets have shown signs of cooling in recent days following progress towards a Middle East peace agreement, easing some pressure on policymakers.
Brent crude fell to around $79 a barrel ahead of the meeting, significantly below the average of roughly $100 seen since April. UK wholesale gas prices also dropped to around 100 pence per therm, down from 116 pence.
However, prices remain above levels recorded before the escalation in tensions, when oil traded near $66 a barrel and gas stood around 87 pence per therm.
The Bank’s cautious approach reflects concerns that renewed energy shocks could push inflation higher again, while weaker domestic demand and a softer labour market argue against keeping monetary policy too restrictive for too long.
Markets expect energy prices to continue easing, but Threadneedle Street remains wary of declaring victory over inflation.
For households and businesses hoping for cheaper borrowing costs, the message from the Bank is clear: rate cuts may be coming, but policymakers are not yet ready to move until inflation risks have further diminished.
George Holmes, Managing Director of business finance specialists Aurora Capital said: “Today’s decision was widely expected, particularly after yesterday’s inflation figures came in better than many economists had feared.
“The challenge for the Bank is that inflation is moving in the right direction, but it is not yet fully under control. Holding rates gives policymakers more time to make sure progress continues without risking a fresh wave of price pressures.
“For small businesses, however, another hold means more waiting. Many companies have spent the last few years adapting to higher borrowing costs, rising wage bills and increasing pressure on margins. While inflation has eased significantly, the cost of doing business remains far higher than many owners would like.
“The good news is that the conversation has changed. A year ago, businesses were worried about how much further rates might rise. Today, the debate is about when further cuts will come and how quickly they will follow.
“That should provide some encouragement for SMEs. But optimism alone does not unlock investment. Business owners still need confidence that borrowing costs are moving sustainably in the right direction before committing to major hiring, expansion, or investment decisions.
“The Bank may have stood still today, but small businesses will be hoping this is another step towards a more predictable and affordable borrowing environment over the months ahead.”
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