Bank of England keeps rates on hold at 3.75%

(Sharecast News) - The Bank of England left interest rates on hold on Thursday, as widely expected, despite rising inflation expectations.

The Monetary Policy Committee voted by a majority of eight-to-one to maintain the cost of borrowing at 3.75%. Huw Pill, the central bank's chief economist, voted for a rise, to 4%.

It is the second time the MPC has kept Bank Rate on hold since the outbreak of war in the Middle East, which has sent global energy prices soaring and reignited inflation fears.

Data published last week showed UK inflation had accelerated to 3.3% in March, driven by a surge in petrol prices, up from February's 3%. Prior to the first US attacks on Iran, the BoE had expected inflation to fall back to 2.1% by the second quarter, just ahead of its long-term 2% target.

In the minutes published alongside the decision, the MPC acknowledged that prospects for global energy prices were "highly uncertain", noting: "Monetary policy cannot influence energy prices but will be set to ensure that the economic adjustment to them occurs in a way that achieves the 2% inflation target sustainably." It added that the relevant policy stance would depend on the "scale and duration of the shock", and how that affects the UK economy.

It also reiterated it "stands ready to act as necessary" to prevent a spike in inflation, adding: "The committee will continue to monitor closely the situation in the Middle East and how its impact propagates through the economy."

Explaining his vote, however, Pill argued: "Our scenarios illustrate how a stronger impulse to inflation may strengthen second-round effects. But I see the risk of second-round effects in each of these scenarios as skewed to the upside.

"A prompt but modest hike in Bank Rate will help mitigate risks to price stability."