The Bank of England has voted to keep interest rates on hold at 3.75%, in a decision widely expected by economists. The Monetary Policy Committee voted 7-2 to maintain Bank rate, with two members preferring a hike to 4%.
The Bank lowered its inflation forecast for the rest of the year, predicting inflation would pick up to a little over 3.25% in Q4, lower than its April forecast. Governor Andrew Bailey warned consumers to expect higher costs due to the conflict in the Middle East, despite falling oil prices as the US and Iran near a peace deal.
The decision came hours after the UK unemployment rate fell to 4.9% in the three months to April. However, the number of job vacancies fell by 19,000 to 707,000 in March to May, the lowest level since February to April 2021, as businesses cut back on recruitment.
Deutsche Bank's chief UK economist Sanjay Raja said the MPC may be more divided on paper but there is a stronger consensus to keep rates on hold for now. He noted that lower wage and price inflation has given the MPC more confidence that price pressures may be contained, despite an inevitable inflation wave in coming months.
JP Morgan pushed back its forecast for a rate hike to November, having previously expected a quarter-point rise in July. The Bank stressed that monetary policy cannot influence energy prices but is set to ensure the economic adjustment to the energy shock occurs in a way that sustainably achieves the 2% inflation target.
