FX.co ★ Bank of England to Keep Rates Steady

The Bank of England is widely expected to keep interest rates unchanged at 3.75%, as policymakers adopt a cautious approach amid concerns that higher energy prices linked to the Iran conflict could fuel more persistent inflationary pressures. UK inflation has exceeded the central bank’s 2% target for most of the past five years, and the BoE has previously warned that it could climb above 3.5% later this year. However, inflation held steady at 2.8% in May—unchanged from April’s 13-month low and below the BoE’s earlier projections. Markets have also found some reassurance in the potential for a US-Iran agreement that might reopen the Strait of Hormuz, thereby reducing the risk of energy-related price spikes. Even so, policymakers remain worried that businesses may continue to pass higher costs through the supply chain, or that public confidence in the 2% inflation target could begin to erode.