The Bank of England held interest rates at 3.75 per cent on Thursday but signalled it may need to increase borrowing costs in the coming months if the energy shock from the Middle East war persists.
The Monetary Policy Committee voted eight to one to keep the central bank’s key rate unchanged for the third meeting in a row.
The BoE has lowered rates six times since the last major surge in inflation, when borrowing costs peaked at 5.25 per cent in 2023.
BoE governor Andrew Bailey said that keeping rates unchanged at 3.75 per cent was a “reasonable place given the situation of the economy and the unpredictability of events in the Middle East”.
He added: “We’ll continue to monitor the situation and its impact on the UK economy very closely.”
The pound was little changed as the decision and the vote split came in line with traders’ expectations, up 0.4 per cent against the dollar on the day at $1.352.
Two-year gilt yields, which had drifted lower with oil prices, were also largely unmoved, down 0.07 percentage points on the day at 4.52 per cent.
The decision comes amid a packed day of economic data releases that will give a picture of how the two-month-old war is impacting Europe and the US.
Data released earlier on Thursday showed that Eurozone inflation rose more than expected to 3 per cent in April as the economy reeled from the energy shock.
Separate figures showed that Eurozone growth slowed to 0.1 per cent in the first quarter.
The European Central Bank will announce its latest rate decision at 1.15pm London time, and the US Bureau of Labor Statistics will release its first-quarter GDP figure at 1.30pm.
