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Informist, Thursday, Jun. 19, 2025

 

NEW DELHI – The Bank of England's Monetary Policy Committee voted by a majority of 6-3 Thursday to keep its interest rate unchanged at 4.25%. The outcome was widely expected, though three members voted for a cut of 25 basis points.

 

The English central bank had cut the bank rate by 25 bps from 4.50% in May at its first meeting after US President Donald Trump announced sweeping tariffs on the country's trading partners. The panel noted that global uncertainty remains elevated.

 

"Energy prices have risen owing to an escalation of the conflict in West Asia," it said. "The Committee will remain sensitive to heightened unpredictability in the economic and geopolitical environment, and will continue to update its assessment of risks to the economy."

 

The panel's comments were made in the context of the recent escalation in geopolitical tensions in West Asia, which have led to a surge in crude oil prices. The UK central bank's decision comes a day after the US Federal Reserve left its policy rate unchanged in the range of 4.25-4.50%. So far, the UK is the only major economy to have struck a trade deal with the US, which is intended to absolve it from President Donald Trump's hike in tariffs on aluminium and steel imports. A 10% goods levy stays in place.

 

"Based on the latest constellation of tariff announcements, provisional bank staff analysis suggested that the direct impact of the trade shock on world GDP could be smaller than the Committee had expected in the May Report," it said. "Trade policy uncertainty would nevertheless continue to have an impact on the UK economy."

 

The central bank noted that underlying UK GDP growth appears to have remained weak, and the labour market has continued to loosen, leading to clearer signs that a margin of slack has opened up over time. The UK's economy contracted 0.3% on month in April, the biggest monthly drop since October 2023, following growth of 0.2% in March.

 

The committee said measures of pay growth have continued to moderate and, like last month, it expects a significant slowing over the rest of the year. The panel remains vigilant about the extent to which easing pay pressures will feed through to consumer price inflation. It expects the UK's consumer price inflation to remain broadly at current rates throughout the remainder of the year before falling back towards the target next year. The UK's CPI annual rate was 3.4% in May, down from the previous reading of 3.5%, but substantially above the central bank's target rate of 2%.

 

The panel said two-sided risks to inflation remain. "Given the outlook, and continued disinflation, a gradual and careful approach to the further withdrawal of monetary policy restraint remains appropriate," it said. "Monetary policy is not on a pre-set path."

 

The committee retained last month's commentary, saying substantial disinflation over the past two years and the restrictive stance of monetary policy preventing second-round effects and stabilising longer-term inflation expectations has allowed it to withdraw some degree of policy restraint gradually while maintaining the bank rate in restrictive territory so as to continue to squeeze out existing or emerging persistent inflationary pressures.

 

The central bank reiterated that monetary policy will need to continue to remain restrictive until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated. "The Committee will continue to monitor closely the risks of inflation persistence and what the evidence may reveal about the balance between aggregate supply and demand in the economy," it said.  End

 

Reported by Pratiksha

Edited by Nishant Maher

 

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