Market News

The Bank of England (BoE) has kept interest rates untouched at 4.25% amid geopolitical uncertainty and surging food and oil prices.

Members of the Monetary Policy Committee (MPC) voted by 6-3 to keep borrowing costs on hold following their reduction announced in May.

Three members — Swati Dhingra, Dave Ramsden and Alan Taylor — backed a quarter of a point cut to 4%. Dhingra and Taylor had backed a half a point reduction at the meeting in May.

It means the Bank has voted to cut rates at every other meeting since it started easing borrowing costs last August, from a peak of 5.25%.

The governor of the Bank of England Andrew Bailey said the world had become “highly unpredictable” as interest rates were held at 4.25%.

Bailey said: “Interest rates remain on a gradual downward path, although we’ve left them on hold today.

“The world is highly unpredictable. In the UK we are seeing signs of softening in the labour market.

“We will be looking carefully at the extent to which those signs feed through to consumer price inflation.”

The decision had been widely anticipated by markets, particularly following inflation data for May showing prices rising 3.4% — well above the Bank’s 2% target.

Investors and economists saw little chance of a rate cut, especially with tensions in the Middle East escalating and pushing oil prices higher.

Traders bet there is an 84% chance that policymakers will cut from 4.25% to 4% at the next meeting. The chances stood at 77% on Wednesday.

This would remain in line with the Bank’s pattern of reducing rates at every other meeting since it started lowering from a peak of 5.25% last August.

Vivek Paul, UK chief investment strategist at BlackRock Investment Institute, said:“The Bank's decision to hold firm today shows that, much like the weather, inflation is too hot to feel comfortable about cutting rates just yet. Services inflation showed signs of easing in yesterday's CPI print, but remains stubbornly high.

"Among developed market central banks, the Bank of England still faces one of the toughest trade-offs between growth and inflation. Uncertainty remains around tariff impacts, and the recent escalation of tensions in the Middle East has added fresh uncertainty."

Indeed, the Monetary Policy Committee (MPC), led by governor Bailey, was expected to maintain a cautious tone even before the outbreak of conflict between Israel and Iran sent oil prices soaring by 8.5% in less than a week.

Zara Nokes, global market analyst at JPMorgan Asset Management, said UK inflation is still “uncomfortably high”.

"Escalating tensions in the Middle East, and the upward pressure this is putting on oil prices, will only add to the Bank of England’s concern about easing rates too quickly," she said.