Bank of England Holds Fire, Three Policymakers Back Rate Hike

The Bank of England left interest rates steady at 3.75% as expected on Thursday, but three policymakers voted for a rate hike due to renewed conflict between the US and Iran.

The Monetary Policy Committee (MPC) voted 6-3 to keep rates unchanged, which is slightly more hawkish than expected. The majority of economists polled by Reuters had predicted a 7-2 split in favor of holding rates steady.

Economists pointed out that despite the sharp rise in energy prices, the MPC appears unconvinced this will translate into persistent domestic inflation. Senior Economist George Brown at Schroders said, 'The labour market is no longer generating the kind of wage pressures that would typically turn an external shock into a broader inflation problem.'

However, others cautioned that renewed pressure on household energy bills from the Iran conflict and uncertainty surrounding the new government's fiscal plans point to persistent inflation risks. Michael Browne, Global Investment Strategist at Franklin Templeton Institute, said, 'The MPC is not so much walking a tightrope, as being blown around by events.'

The market is pricing in at least one interest rate rise in the UK this year, with three members voting for an increase. The next meeting of the Monetary Policy Committee is scheduled for September.