Bank of England Holds Rates at 3.75% Citing Energy
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- Bank of England held its base rate at 3.75% for a fourth straight meeting, saying interest rate policy depends on the "scale and duration" of the energy price shock
- Governor Andrew Bailey called recent oil price drops "encouraging" but warned four months of high energy prices had already created "inflationary pressure in the pipeline"
- The MPC vote was 7-2, with Megan Greene joining chief economist Huw Pill in backing a hike to 4% — a tighter split than the 8-1 hold in April
- The Bank cut its year-end inflation forecast to 3.25%, below even its most benign scenario, while official figures showed UK inflation at 2.8% in May and job vacancies at a five-year low
- Ofgem's energy price cap will rise 13% in July, and the average two-year fixed mortgage rate hit 5.59% — up from 4.83% when the Iran war began in early March
- The European Central Bank raised rates for the first time in nearly three years, citing conflict-driven inflation pressure, while the US Federal Reserve held rates on Wednesday
Why it matters: UK households face a 13% Ofgem price cap rise in July while the average two-year fixed mortgage rate has climbed 76 basis points to 5.59% since the Iran war began. Even with the Bank's lowered year-end inflation forecast of 3.25%, that still sits well above its 2% target, meaning the cost-of-living squeeze persists regardless of the US-Iran peace deal.
