Bank of England holds interest rates amid inflation and global risks

The Bank of England held interest rates at 4.25 per cent as expected on Thursday but said it was focused on risks from a weaker labour market and higher energy prices as conflict in the Middle East escalates. 

Noting the elevated global uncertainty and persistent inflation, the Monetary Policy Committee voted 6-3 to keep rates on hold.

The pound turned negative against a broadly stronger dollar on Thursday after the Bank of England (BoE) held rates steady as expected and cited elevated global uncertainty and persistent inflation as concerns. 

Sterling was 0.1 per cent lower at $1.3417 and also against the euro, which traded at 85.53 pence.. 

The FTSE 100 barely reacted, trading 0.2 per cent lower on the day, roughly where it had been prior to the BoE decision, while two-year gilt yields fell to session lows at 3.886 per cent before edging higher to 3.897 per cent. 

COMMENTS 

JEREMY BATSTONE-CARR, STRATEGIST, RAYMOND JAMES INVESTMENT SERVICES, FRANCE: 

"As widely expected, the Bank of England's rate-setting Monetary Policy Committee kept UK interest rates unchanged on Thursday, in a decision that was not unanimous. Although the MPC has telegraphed that it would prefer to cut rates at every other meeting, three of the Committee's more dovish members voted for a further easing of 25 bps. This split decision signals that the central bank is preparing to loosen monetary conditions again, possibly as soon as August." 

MARK DOWDING, CHIEF INVESTMENT OFFICER, BLUEBAY, LONDON:   "The Bank of England would like lower interest rates. They would like to see interest rates come down, they want to believe inflation is under control. That's what some of their models are telling them should be happening." 

"However, instinctively, I've been of the opinion that UK inflation is too high and it would be a mistake to cut rates." 

"And from that point of view, I do think that if UK yields go down, on the idea that the Bank of England is more dovish, then I'd actually like to fade that and take the other side of the argument and look for yields to move higher. 

"When I look at inflation, the lived experience of inflation certainly suggests inflation is running at sort of 4 per cent today. The prices of everything seems to be going up perpetuity and inflation expectations are probably running around that sort of level. And so against that backdrop, I don't see the Bank of England having much room to cut rates." 

NICK REES, HEAD OF MACRO RESEARCH, MONEX EUROPE, LONDON:   "It looks like they're sticking with the one-cut-a-quarter pace. Some of the commentary has backed away from Bailey's original suggestion that would be the pace of cuts, but while it might not be the official answer, it still seems like it's the plan. 

The one big takeaway is the 6-3 vote split. That's dovish relative to consensus, and markets will take a signal from it, but I think it has very limited actual read-through to what the BoE will do moving forwards. But it's nice to have a relatively on-expectations central bank after the two we've had this morning."  (Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)