Bank keeps bank rate on hold but hints at rises – Daily Business

Bank of England rate setters have kept borrowing costs on hold but have warned of future rises because of the conflict in the Middle East.

The Monetary Policy Committee (MPC) voted by a majority of 8–1 to maintain Bank Rate at 3.75%. One member voted for a 0.25 percentage points rise to 4%.

The Bank said: “The conflict in the Middle East means that prospects for global energy prices are highly uncertain.

“Monetary policy cannot influence energy prices but will be set to ensure that the economic adjustment to them occurs in a way that achieves the 2% inflation target sustainably.

The policy stance required to achieve this will depend on the scale and duration of the shock, and how it propagates through the economy.

The April Monetary Policy Report sets out three scenarios that help to illustrate a range of possible outcomes for the UK economy.

CPI inflation has increased to 3.3%, and is likely to be higher later this year as the effects of higher energy prices pass through. There is a risk of material second-round effects in price and wage-setting, which policy would need to lean against.

But the labour market continues to loosen, and a weakening economy could contain inflationary pressures. Financial conditions have tightened since the conflict began, which will help to reduce inflation over time.

Taking all the risks to the economic outlook into account, the Committee judges that it is appropriate to maintain Bank Rate at this meeting.

The Committee said it will continue to monitor closely the situation in the Middle East and how its impact propagates through the economy. The Committee stands ready to act as necessary to ensure that CPI inflation remains on track to meet the 2% target in the medium term.

Luke Bartholomew, deputy chief economist, at Aberdeen said: “The decision to keep policy on hold today was widely expected. Instead, the market was much more interested in how the decision was communicated, especially given the hawkish lurch at the last meeting, which was subsequently walked back.

“This time the Bank has leaned heavily on its scenarios approach to describing the outlook and risks which should help to clarify the reaction function, and the data policymakers will be watching to decide how to set policy.

“We are still minded to think that the recessionary risks facing the economy will limit any second round inflation effects, and so caution against tightening policy. But if oil prices continue to move higher, it is hard to see how the Bank avoids having to hike later this year.

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