The Bank of England has held interest rates at 3.75% as it cautioned that the cost of living was still set to rise this year because of the fallout from the Iran war.
Policymakers nonetheless said that a recent fall in energy prices meant it was no longer expecting inflation to go as high as it was in April.
Seven of the Bank’s nine-person Monetary Policy Committee (MPC) voted to keep interest rates the same at the latest meeting, while two opted to hike them to 4%.
Governor Andrew Bailey, who voted for a hold, said: “Oil prices have fallen in recent days, and that’s encouraging. But they’re still higher than before the war. Whatever happens in the future, the higher energy prices of the past four months mean there’s already some inflationary pressure in the pipeline.”
The decision comes amid ongoing economic uncertainty driven by the conflict in Iran, which has disrupted global energy markets. The Bank's updated forecasts suggest inflation will peak at a lower level than previously anticipated, but will still exceed the 2% target.
Analysts expect further rate increases later this year as the Bank seeks to curb rising prices. The next MPC meeting is scheduled for June.
