Bank of England holds rates at 4.25%
The Bank of England’s Monetary Policy Committee (MPC) has voted by a majority of 6–3 to maintain the Bank Rate at 4.25%. Three members preferred to reduce the Bank Rate by 0.25 percentage points to 4%.
There has been substantial disinflation over the past two years, as previous external shocks have receded, and as the restrictive stance of monetary policy has curbed second-round effects and stabilised longer-term inflation expectations, it said in an accompanying statement on Thursday (19 June).
This has allowed the MPC to withdraw gradually some degree of policy restraint, while maintaining the Bank Rate in restrictive territory so as to continue to squeeze out existing or emerging persistent inflationary pressures.
“Underlying UK GDP growth appears to have remained weak, and the labour market has continued to loosen, leading to clearer signs that a margin of slack has opened up over time. Measures of pay growth have continued to moderate and, as in May, the Committee expects a significant slowing over the rest of the year. The Committee remains vigilant about the extent to which easing pay pressures will feed through to consumer price inflation.
“Twelve-month CPI inflation increased to 3.4% in May from 2.6% in March, in line with expectations in the May Monetary Policy Report. The rise was largely due to a range of regulated prices and previous increases in energy prices. Consumer price inflation is expected to remain broadly at current rates throughout the remainder of the year before falling back towards target next year.”
The MPC noted that global uncertainty remains elevated. Energy prices have risen owing to an escalation of the conflict in the Middle East a
The committee said it will remain sensitive to heightened unpredictability in the economic and geopolitical environment and will continue to update its assessment of risks to the economy.
“There remain two-sided risks to inflation. Given the outlook and continued disinflation, a gradual and careful approach to the further withdrawal of monetary policy restraint remains appropriate. Monetary policy is not on a preset path. At this meeting, the Committee voted to maintain the Bank Rate at 4.25%.
“The Committee will continue to monitor closely the risks of inflation persistence and what the evidence may reveal about the balance between aggregate supply and demand in the economy,” it said.
It added that monetary policy will need to continue to remain restrictive for sufficiently long until the risks of inflation returning sustainably to the 2% target in the medium term have dissipated further.
“The committee will decide the appropriate degree of monetary policy restrictiveness at each meeting.”
