The Bank of England kept interest rates on hold as expected on Thursday, but a third policymaker backed a rate hike due to renewed conflict between the United States and Iran.
The rate-setting Monetary Policy Committee (MPC) voted 6-3 to keep rates at 3.75% rather than the 7-2 split most economists polled by Reuters had expected.
Britain's two-year government bond yield, which is sensitive to BoE rate expectations, slightly extended its earlier fall to trade 7 basis points lower at around 4.38% .
Sterling was last up 0.1% at $1.339, down very slightly from before the decision. And the blue-chip FTSE stock index held near record highs hit earlier in the session (.FTSE).
COMMENTS:
GEORGE BROWN, SENIOR ECONOMIST AT SCHRODERS:
"For now, the Bank is not seeing enough to abandon its wait-and-see approach. Despite the sharp rise in energy prices, the majority appear unconvinced this will translate into more persistent domestic inflation."
"The labour market is no longer generating the kind of wage pressures that would typically turn an external shock into a broader inflation problem. That should limit the risk of second-round effects becoming embedded and, in our view, mean the Bank can remain on hold for the foreseeable future."
FELIX FEATHER, ECONOMIST, ABERDEEN:
"With the vote split marginally tighter than expected at 6-3, this was a slightly more hawkish Bank of England hold than expected. The increase in dissenters suggests concern about inflation risks is spreading within the MPC and increases the chance that rates could move higher if inflation doesn't continue to moderate."
ED HUTCHINGS, HEAD OF RATES, AVIVA INVESTORS:
"Today’s BoE decision to keep interest rates unchanged was fully expected, but going forward it remains apparent that a lot of uncertainty amongst MPC members exists. This can be seen in both the voting pattern and the comments."
"How this plays out is far from clear and although recent employment and inflation data has been of some comfort, investor attention and the Committee’s focus is likely to be on risks around the outlook ahead, and particularly so from an inflation standpoint.
"For now however, we expect the MPC will want to remain in a wait-and-see mode to assess developments both domestically and from events in the Middle East."
MICHAEL BROWNE, GLOBAL INVESTMENT STRATEGIST, FRANKLIN TEMPLETON INSTITUTE:
"In many respects, the MPC has been fortunate in 2026, with financial markets doing much of the tightening on its behalf. Elevated gilt yields and higher borrowing costs have already tightened financial conditions without the Bank having to act."
"Looking ahead, that is unlikely to change. Renewed pressure on household energy bills from the Iran conflict, uncertainty surrounding the new government's fiscal plans and the impact of drought on food prices all point to persistent inflation risks. As a result, markets are likely to continue keeping pressure on financial conditions."
"Investors are currently pricing in at least one rate rise before the end of the year and a further increase by next spring, particularly as expectations for tighter monetary policy in the US continue to build."
"The MPC is not so much walking a tightrope, as being blown around by events."
RICHARD CARTER, HEAD OF FIXED INTEREST RESEARCH, QUILTER CHEVIOT:
"The market is pricing in at least one interest rate rise in the UK this year, and with three members voting for an increase today and events in the Middle East show no sign of easing the pressure, this won’t change."
"The Monetary Policy Committee next meets in September, and a rate rise could be possible by then. However, complicating matters somewhat is the expected Budget from John Healey at some point in the Autumn. With cost-of-living measures expected to be front and centre of this, as well as additional spending commitments looking likely, it may be the BoE sticks to its holding pattern before acting, offering a level of policy stability that is craved right now."
