BoE Keeps Interest Rate at 3.75% Amid Uncertainty Over Energy Shock
The Bank of England (BoE) decided to keep its key interest rate at 3.75% for the fifth time this year, in line with market expectations. This decision comes after a bigger-than-expected drop in inflation last month, giving policymakers some breathing space to assess the impact of renewed fighting in Iran.
The BoE's Monetary Policy Committee voted 6-3 to maintain the rate at 3.75%, following four consecutive rate cuts in 2025. Three committee members dissented from the decision, arguing that the potential inflationary effect of recent energy price spikes was too great to ignore.
BoE Deputy Governor Clare Lombardelli and Governor Andrew Bailey attended a press conference on Thursday to discuss the decision. The BoE's statement noted that 'the impact of the energy shock on the UK economy remains uncertain,' but added that the rate changes required to meet the inflation target would depend on the scale and duration of the shock.
Some policymakers, including committee member Huw Pill, expressed concerns about potential second-round effects driven by wage and price dynamics. Pill stated, 'I remain concerned about more insidious second-round effects...they could prove more lasting and create greater intrinsic inflation persistence.'