Bank of England joins other major banks in keeping the interest rate steady

The Bank of England (BoE) is keeping interest rates at 3.75% for another month, for the fourth time in a row, but warns of the impact of high energy prices.

The BoE joins the Central Bank of Canada and the Federal Reserve in announcing this week that they are holding rates steady for another month. The Bank’s monetary policy committee voted 7-2 to leave rates on hold, with the majority of policymakers deciding it would be premature to raise rates now given uncertainty about the strength of increased inflation pressures. 

The BoE also predicted inflation would “pick up to a little over 3.25% in Q4”, lower than forecast in April, owing to higher costs this year as a result of the conflict in the Middle East, despite falling oil prices as the US and Iran near a peace deal.

BoE Governor Andrew Bailey reported there is “still some inflationary pressure in the pipeline” after the conflict pushed up energy prices. The Bank’s decision came hours after the UK’s unemployment rate fell, to 4.9% in the three months to April.

Latest job numbers 

The latest figures from the Office for National Statistics (ONS) also show that the number of UK job vacancies fell to its lowest level for five years, as businesses cut back on recruitment. The number of job vacancies in the March to May period fell by 19,000 to 707,000, the ONS said, the lowest level since February to April 2021. 

However, the inflation outlook is uncertain. A deal between the US and Iran to open the key Strait of Hormuz trade route was only announced this week, and while oil prices have fallen, they are still above where they were before the conflict began.

Governor Bailey is “very encouraged” by the US-Iran agreement, but holding rates “is a sensible decision”. While inflation is stable, it remains above the Bank’s 2% target. 

If there are any issues in reopening the strait and crude prices spike again, that could move the Bank to lift rates. Two rate-setters voted for an increase this time around.