FX.co ★ BoE Leaves Rates Unchanged, Flags Inflation Risks

The Bank of England kept its Bank Rate unchanged at 3.75% at its July meeting, with a 6–3 majority in favor of holding rates steady and three policymakers voting for a 25-basis-point increase to 4.0%. The decision reflects a trade-off between easing inflation and ongoing risks from higher energy prices following recent tensions in the Middle East. While consumer price inflation has slowed to 2.6%, the Bank expects it to pick up again later this year as increased energy costs filter through to households and businesses. So far, there is little evidence of significant second-round effects on inflation, and softer labor market conditions together with still-high borrowing costs are helping to dampen underlying price pressures. Even so, the Committee judges that inflation risks remain skewed to the upside due to geopolitical uncertainty and reiterates that it stands ready to tighten policy further, if needed, to ensure inflation returns to its 2% target on a sustained basis.