{"id":645456,"date":"2026-06-18T14:51:09","date_gmt":"2026-06-18T14:51:09","guid":{"rendered":"https:\/\/www.newsbeep.com\/uk\/645456\/"},"modified":"2026-06-18T14:51:09","modified_gmt":"2026-06-18T14:51:09","slug":"bank-of-england-keeps-interest-rates-at-3-75-as-iran-conflict-weighs-on-economy-bank-of-england","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/uk\/645456\/","title":{"rendered":"Bank of England keeps interest rates at 3.75% as Iran conflict weighs on economy | Bank of England"},"content":{"rendered":"

The Bank of England<\/a> has left interest rates on hold, arguing that reacting too quickly to inflation threats risks creating \u201cundesirable volatility\u201d, as the Iran war drags on the UK economy.<\/p>\n

Seven of the nine-person monetary policy committee voted to keep rates at 3.75% as the MPC weighed the threat of higher inflation against the prospect of an economic slowdown.<\/p>\n

Two members voted for an immediate rise, indicating the risk that borrowing costs could soon increase.<\/p>\n

Donald Trump\u2019s pact with Iran, expected to be signed on Friday, has brought oil prices down rapidly in recent days and figures released on Wednesday showed UK inflation was more muted than feared<\/a>, at 2.8% last month.<\/p>\n

The Bank now expects the impact of the conflict on UK inflation to be less dramatic than first thought, with the consumer prices index rising to about 3.25% in the fourth quarter of this year \u2013 lower than in any of three scenarios it laid out last month.<\/p>\n

That is still well above the Bank\u2019s target of 2%. But the Bank\u2019s governor, Andrew Bailey, explaining his vote, said a rapid reaction to rising inflation carried a risk of \u201cundesirable volatility\u201d, and he suggested that the current weakness of the economy \u2013 including the jobs market<\/a> \u2013 should help to contain the risk of inflation becoming entrenched.<\/p>\n

\u201cGiven the context at present of softness in the real economy and uncertainty around the scale and duration of the shock to energy prices, tolerating temporarily above-target inflation as part of a return to target is an appropriate way to approach the trade-off, providing inflation expectations remain contained,\u201d he said.<\/p>\n

Bailey added: \u201cOil prices have fallen in recent days, and that\u2019s encouraging. But they\u2019re still higher than before the war. Whatever happens in the future, the higher energy prices of the past four months mean there\u2019s already some inflationary pressure in the pipeline.\u201d He said the Bank would attempt to ensure that inflation did not stay above its 2% target for a sustained period.<\/p>\n

The minutes of the meeting, published alongside the decision, reveal that the MPC remains concerned about the risk that higher energy prices feed through into wider inflation in the coming months.<\/p>\n

Huw Pill warned of the risk of \u2018catch-up dynamics\u2019. Photograph: Suzanne Plunkett\/Reuters<\/p>\n

\u201cThe committee will continue to monitor closely the situation in the Middle East and how its impact propagates through the economy. The committee stands ready to act as necessary to ensure that CPI [consumer price index] inflation remains on track to meet the 2% target in the medium term,\u201d the minutes say.<\/p>\n

Megan Greene, an independent member of the MPC, joined the Bank\u2019s chief economist, Huw Pill, in voting for a quarter-point rise, to 4%. The hawkish Pill had already backed a rise at the Bank\u2019s last meeting in May.<\/p>\n

Pill said: \u201cGlobal energy prices remain volatile, and elevated compared with their pre-hostilities level, despite the announcement of a new ceasefire.\u201d He warned of the risk of \u201ccatch-up dynamics\u201d, as companies and workers bid up prices and wages in response to higher costs, embedding inflation in the economy. \u201cI continue to favour prompt but modest action on bank rate now,\u201d he added.<\/p>\n

The Bank\u2019s wait-and-see stance contrasts with that of the European Central Bank (ECB) which raised rates last week<\/a> in an attempt to squeeze inflation.<\/p>\n

The MPC minutes highlight the fact that borrowing costs for consumers and businesses have already risen significantly since the Iran conflict began, as a result of shifts in bond markets \u2013 despite the Bank not having taken any action. The minutes highlight the fact that there has been \u201cfull and fast pass-through\u201d of these market moves, to mortgages and business loans.<\/p>\n

Figures released by the Office for National Statistics on Thursday show that the number of UK job vacancies fell<\/a> to its lowest level for five years as businesses cut back on recruitment, despite signs that the labour market has been more resilient to the Iran war than feared.<\/p>\n

UK markets will be closely watching the outcome of Thursday\u2019s byelection in Makerfield<\/a>, with the prospect of a period of political uncertainty unlikely to be welcomed by investors in the UK\u2019s bonds.<\/p>\n

On Wednesday, the Federal Reserve kept US interest rates on hold<\/a> at a range of 3.5% to 3.75%, where they have been since December, in the first meeting overseen by Kevin Warsh, who took over as Fed chair in May.<\/p>\n","protected":false},"excerpt":{"rendered":"The Bank of England has left interest rates on hold, arguing that reacting too quickly to inflation threats…\n","protected":false},"author":2,"featured_media":645457,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[84,1294,56,54,55],"class_list":["post-645456","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-business","tag-economy","tag-uk","tag-united-kingdom","tag-unitedkingdom"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/645456","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/comments?post=645456"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/645456\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media\/645457"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media?parent=645456"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/categories?post=645456"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/tags?post=645456"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}