BOE Holds Rates in Split Vote as War Clouds Inflation Outlook

Skip to Content News Archives Economy Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions Saved Articles My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials This advertisement has not loaded yet, but your article continues below.HomePMN BusinessBOE Holds Rates in Split Vote as War Clouds Inflation OutlookThe Bank of England kept interest rates steady at 3.75%, as UK officials sought to balance the threat from resurgent US-Iran tensions against signs that domestic price pressures are easing more quickly than predicted.Author of the article: You can save this article by registering for free here. Or sign-in if you have an account.g7s1[jdpe(jqu0oaesh43wg[_media_dl_1.png Bank of England(Bloomberg) — The Bank of England kept interest rates steady at 3.75%, as UK officials sought to balance the threat from resurgent US-Iran tensions against signs that domestic price pressures are easing more quickly than predicted.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountThe Monetary Policy Committee voted six-three in favor of leaving rates unchanged, with Chief Economist Huw Pill and external members Megan Greene and Catherine Mann voting for a quarter-point increase, minutes from its meeting showed on Thursday. Only Pill and Greene had supported immediate action in June.Officials kept their options open by maintaining guidance stating that the panel “stands ready to act” to stop high inflation lingering, as it tries to navigate the wild energy-price swings of recent weeks. The unpredictable environment meant that, in the days immediately preceding the committee’s announcement, oil and gas prices were already running substantially higher than the average the bank had assumed in its central forecast just ten days before. Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againHowever, the committee said there were “clear signs” that domestic inflationary pressures are easing and “little evidence” so far that the energy shock has stoked wage demands and higher prices elsewhere. The majority of policymakers who backed no change in rates also said their strategy could change were the war to end soon, with two members saying they’d consider a cut in that event. “There is little evidence yet of second-round effects, although it is too early to take much comfort from that,” BOE Governor Andrew Bailey said. “Holding bank rate is appropriate as global conditions look to be more uncertain and inflationary, while domestic conditions are on balance more benign as regards the prospects for inflation.”The conflict is entering its sixth month, with little sign that intermittent negotiations will yield a lasting peace. While inflation is running at levels the BOE had expected in the spring, price growth is expected to accelerate in the coming months, reflecting a July increase in household energy bills alongside a fresh rise in motor-fuel costs.The UK central bank restored its central inflation forecast it had ditched in April and also published a “mild” and “adverse” scenario showing the different paths for oil and gas costs. Thursday’s central projection — which was based on a 15-day snapshot of energy prices through July 20 — pointed to UK inflation peaking at 3.2% at the end of this year, up from 2.6% currently, before returning to around the BOE’s 2% target next year. In a more pessimistic scenario, which included crude prices over $100 a barrel and remaining elevated, with gas 60% higher, the bank predicted inflation could jump to a high of 4.5% in the second quarter of 2027. In the event of a quicker resolution to the conflict in the Middle East, the more optimistic projection showed price growth peaking at 3%, with fewer second-round effects.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.In all three scenarios, GDP growth hovers around 1% in 2026 and 2027, before picking up in 2028. A sluggish economy, easing domestic price pressures and tightening financial conditions have bought the committee some time in assessing the effects of the war on the UK economy. With vacancies and private-sector wage growth at their lowest since the pandemic, job-market conditions could help contain the possibility that the energy shock triggers second-round effects that exacerbate inflation.While the BOE has kept its powder dry so far, traders put the odds of a quarter-point hike at the September meeting at just over 50%, ahead of Thursday’s decision. Just under 40 basis points of tightening was priced in by the end of the year.The BOE’s outlook has been clouded by a turbulent month for oil and gas prices that are critical to the UK’s inflation outlook. Brent crude has swung from a low of just above $70 a barrel at the start of July to over $100 last week before cooling to around $90 on Wednesday.The Federal Reserve also opted to leave rates unchanged at 3.5% to 3.75% on Wednesday, although three policymakers dissented in favor of a hike, and Chair Kevin Warsh insisted the central bank would take action if there were signs of inflation remaining higher for longer. Long-dated Treasury bonds nonetheless plunged amid concerns the Fed is acting too slowly to rein in inflation that has run above its target for 5 years.The BOE also provided the first hints on the future of quantitative tightening ahead of a decision in September on the next year of the program. It said the impact of the balance run-off had been modest, though 5 basis points higher than it estimated last year at 20 to 30 basis points on 10-year gilt yields.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.