The Bank of England decided to hold rates steady today, mainly due to concerns about sticky inflation.
The Monetary Policy Committee (MPC), by a six-to-three vote, decided to hold the bank rate at 4.25%. The three dissenters preferred to lower rates by 25 basis points.
The BoE said 12-month CPI inflation increased to 3.4% in May from 2.6% in March. The rise was attributed mainly to a range of regulated prices and previous increases in energy costs. CPI is expected to remain at current rates throughout the remainder of the year before falling back towards target next year.
The Bank of England has a policy of targeting a 2% rate of inflation.
Will Hobbs, Head of UK Multi-Asset Wealth, Barclays Private Bank and Wealth Management, commented on the decision to hold rates.
“The UK economy’s cyclical pulse remains a little stronger than much of the commentary suggests. Household incomes have continued to grow faster than inflation and that has been showing up in consumption. The uncertainty created by the US tariffs will certainly have some dampening effect. However, there are potential offsets in the form of the dramatic changes happening in Europe,” he said. “Inflationary pressure continues to unevenly subside on the evidence on latest data on both prices and employment. We expect base rates to trickle lower into the end of the year as suggested by market pricing and the 6 – 3 vote split.”
Hobbs added there are plenty of items to be concerned about, both known and the unknown, while stating a “glass half full perspective” supports investment opportunities that will gather with the incoming “Industrial Revolution” as well as a good starting point for the UK’s consumer.
Yesterday, the US Federal Reserve also decided not to change benchmark rates as the Federal Open Market Committee struggles with the impact of tariffs on the economy.
