February 6, 2025 in London, England, outside the Bank of England outside the capital financial district.
Richard Baker | in pictures | Getty Images
The Bank of England kept its key interest rate at 4.25% at its meeting on Thursday, with economists expecting the central bank to wait until August to reduce again.
Six of the BOE’s monetary policy committee chose to hold the tax rate, with three choosing 25 baseline layoffs.
“The growth of basic UK GDP (gross domestic product) still seems to be weak, and the labour market continues to relax, thus making it clearer that slack profit margins have been opened over time,” the central bank said in a statement.
“The measure of compensation growth continues to be moderate, and the commission expects a slowdown for the rest of the year,” it said, adding that the MPC “is alert to the extent to which the pressure to relieve compensation, which will lead to consumer price inflation.”
The central bank warned that energy prices rose because of the escalation of the Middle East conflict. It added: “The Commission will be sensitive to unpredictability in the economic and geopolitical environment and will continue to update its assessment of economic risks.”
The central bank concluded, further noting that “because of the prospects and ongoing dissolution, a gradual and cautious approach to further withdrawal of monetary policy restrictions remains appropriate.”
It marks “monetary policy is not a pre-set path” in signals that may signal to markets and investors to lower expectations.
Policymakers’ decision to hold interest rates comes as the latest data issued on Wednesday showed that the UK’s annual inflation rate reached 3.4% in May, meeting analyst expectations but far exceeded the bank’s target of 2%.
Earlier this year, the Bank of England said it expects inflation to rise to 3.7% in the third quarter before starting to cool down until next year. Still, it is unaware of the outcome of US President Donald Trump’s global tariff policy, which could increase as the Middle East conflict breaks out.
These pressures came after the economic contraction of 0.3% in April, with insufficient growth in the UK, putting central banks in difficulties in whether and when to lower interest rates.
“Banks divided five (MPC members) into four decisions to lower interest rates last month, and most people are seeing a slowdown, and if tariffs and other U.S. policies penetrate the economy, it’s worrying, and that’s worrying,” John Gieve, former lieutenant governor of the Bank of England, told CNBC on Wednesday.
“The question is, ‘We’re going to cut it now or wait a little bit?’ That’s how they look at it,” he added.
“The Middle East conflict makes things more complicated. First, it may affect oil prices, which may further drive inflation further… Second, it may cause damage to the world economy and trade, which is again a downward pressure on our growth, so that’s exactly where banks are now,” he told CNBC’s “Squawk Box Europe.”
Reuters surveyed economists, expecting BOE policymakers to lower the ratio by 25 basis points (BPS) at their next gathering in August and cut it by 25 basis points in the fourth quarter.
Greeve said the convergence of external, uncontrollable and potential inflationary pressures and the convergence of domestic growth, taxation and expenditure prospects makes it difficult to predict the BOE strategy.
“The expectations of banks and the market are that unless there is a lot of development on the world stage, interest rates will drop to 4%, or it may drop a little, but we don’t know how this conflict in the Middle East will work, we don’t know how tariffs … will work.
