Bank of England's Monetary Policy Committee voted 7-2 to maintain the Bank Rate at 3.75%, citing the impact of falling global energy prices. The central bank remains committed to its 2% inflation target despite current global uncertainties.
Bank of England maintained status quo and held the interest rates at 3.75 per cent underlining the impact of falling global energy prices since its previous meeting.
The Monetary Policy Committee (MPC) voted 7-2 to maintain Bank Rate at 3.75 per cent with two members in favour of raising rates by 25 basis points to 4 per cent. The central bank said it is committed to price stability and achieving a target of 2 per cent inflation.
Impact of Geopolitics and Oil Prices
The hold comes amid a peace agreement that was signed between the US and Iran. Both the countries decided to enter a 60-day period of no hostilities and immediate opening of Strait of Hormuz. Oil prices took a breather and have fallen since although still above the pre-conflict level.
Global Monetary Policy Response
The US Federal Reserve, on Wednesday, held the Federal Funds Rate at 3.5-3.75 per cent with a hawkish outlook spooking markets. Kevin Warsh, who chaired his maiden Fed policy, spoke multiple times about price stability and the dot plot by Fed members indicated that one rate hike is imminent this year.
Earlier, Japan and European Central Bank (ECB) raised interest rates. Japan raised rates to 1 per cent taking them to a 31-year high. Inflation fear has rippled through major economies as they balance rising prices and stalling growth.
BoE's Inflation Outlook
The Bank of England said that even though inflation has fallen to 2.8 per cent since the previous meeting, it is expected to rise later in the year as effects of higher energy prices continue to pass through.
"The risk of material second-round effects in price and wage-setting, against which policy needs to lean, is greater the longer higher energy prices persist," Bank of England said.
The Bank said that signs of weakening economy could contain inflationary pressures. The MPC said it will closely track the developments in Middle East and see how the impact propagates through economy.
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