The Bank of England kept its key interest rate on hold for the fifth time this year on Thursday after a bigger-than-expected drop in the inflation rate last month gave policymakers breathing space to assess the fallout from renewed fighting in Iran.
The bank’s monetary policy committee voted 6-3 to keep the rate at 3.75%, in line with the expectations of most economists. Policymakers have kept the rate at that level since December after four rate cuts in 2025.
The split decision highlights growing tensions within central banks around the world about how to respond to stubbornly high inflation and concerns that the war in Iran will lead to another round of price increases. The U.S. Federal Reserve on Wednesday kept its key rate at a range of 3.5% to 3.75%, with Chairman Kevin Warsh saying the Fed “will not hesitate to act” to keep inflation under control.
“The impact of the energy shock on the UK economy remains uncertain,” the committee said in a summary of its deliberations. The interest rate changes required to meet the inflation target “will depend on the scale and duration of the shock, and how it propagates through the economy,” it added.
But three policymakers disagreed, saying the potential inflationary effect of the recent surge in energy prices was too great to ignore, even though price spikes earlier in the war haven’t yet pushed up prices and wage demands in Britain. All three voted to raise rates by a quarter point to 4%.
