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The Guardian World1 min read
Bank of England leaves interest rates on hold at 3.75%
TL;DR
The Bank of England has kept interest rates steady at 3.75% amid rising inflation linked to the Iran war. The decision was made by a split vote of 8-1 within the monetary policy committee.
Key points
- Bank of England keeps interest rates at 3.75%
- Inflation is rising due to the Iran war
- Monetary policy committee voted 8-1 to hold rates
Mentioned in this story
Bank of England
Iran war
The Bank of England has left UK interest rates unchanged at 3.75%, despite signs that inflation is beginning to accelerate due to the impact of the Iran war.
The Bank’s rate-setting monetary policy committee (MPC) voted to leave borrowing costs on hold at noon on Thursday, after its latest rate-setting meeting.
The vote by the nine-member committee to keep rates on hold was split 8-1, with chief economist Huw Pill alone in voting to raise rates to 4%.
The MPC’s role is to help keep UK inflation at a target of 2%. It has cut interest rates six times since mid-2024 and had been expected to make further reductions this year before the US-Israeli war on Iran began.
However, rising energy costs as a result of the effective closure of the strait of Hormuz has began to push up inflation around the world.
The latest Office for National Statistics (ONS) figures showed the rate of inflation in the UK rose to 3.3% in March, up from 3% in February. A separate report from the S&P Global purchasing managers’ index showed firms in the UK’s dominant services sector were hit between March and April with the biggest jump in costs since 1996.
Petrol and diesel prices in the UK have soared since the start of the Middle East conflict, reflecting a jump in the global oil price to above $100 a barrel .
Before today’s decision, financial markets had anticipated the Bank of England will make at least two increases in borrowing costs this year to combat stubborn inflation.
The decision to keep rates on hold for now, however, will come as a relief to the Labour government ahead of the important local elections next week. In the House of Commons on Tuesday, chancellor Rachel Reeves boasted that the six cuts in interest rates since her party came to power has been “the best way to help people with the cost of living, especially if they have a mortgage”.
Reeves had also announced a package of anti-inflation measures in her late November budget that she hoped would pave the way for more rate cuts. These included cuts to utility bills and a rail-fare freeze, both of which came into effect in April, and should temper a rise in inflation for this month.
Economic activity had shown some momentum in the UK before the energy price shock. In the three months to February, and the unemployment rate .
Q&A
Why did the Bank of England decide to keep interest rates at 3.75%?
The Bank of England maintained interest rates at 3.75% despite rising inflation due to the Iran war, as the monetary policy committee voted 8-1 to hold rates steady.
What impact is the Iran war having on UK inflation?
The Iran war is causing rising energy costs, which are contributing to an acceleration of inflation in the UK and globally.
What was the vote outcome of the Bank of England's monetary policy committee?
The monetary policy committee voted 8-1 to keep interest rates unchanged, with chief economist Huw Pill being the only member voting for a rate increase.
