The Bank of England's Monetary Policy Committee voted 6-3 to maintain the benchmark interest rate at 3.75%. While markets widely anticipated this pause, the number of policymakers advocating for a rate hike increased from two to three, driven by persistent energy price pressures.
In London on March 12, 2025, the Bank of England's exterior was visible as the Financial Conduct Authority and the Prudential Regulation Authority introduced new rules for diversity and inclusion in the financial sector. The central bank ultimately kept its policy rate at 3.75%, aligning with the broad expectations of economists. The vote split was 6-3 in favor of holding the Bank Rate steady.
Three members—Megan Greene, Huw Pill, and Catherine Mann—dissented, advocating for a 25-basis-point increase. The Bank of England stated that all members agreed energy prices are generally trending higher, raising the risk of above-target inflation.
UK headline inflation fell to 2.6% in June, a 15-month low, leading markets to anticipate the pause. However, Greene noted that inflation has been above the policy target for nearly five consecutive years. She highlighted ongoing supply risks, including new energy shipping route threats in the Red Sea and tight AI hardware supply, which continue to pressure the market.
"Proactively raising rates now reduces the probability of a second-round pass-through effect on inflation," she said. Pill warned of "high uncertainty in the energy price outlook," suggesting such volatility is likely to persist for an unpredictable duration, making fine-tuning monetary policy risky.
"Therefore, a rate hike now is justified to shield the economy from fluctuations in commodity and asset prices, while clearly signaling the Bank's willingness and ability to address inflation risks stemming from the Middle East situation. This gives us more flexibility to handle various inflation risks going forward," he added.
Following the decision, the British pound rose 0.08% against the US dollar to $1.3376. Felix Feather, an economist at Aberdeen Asset Management, analyzed that the increase in dissenting votes from two to three indicates growing inflation concerns within the committee. If inflation fails to cool further, the likelihood of a subsequent rate hike rises.
"This pause is broadly hawkish and exceeded market expectations," Feather said. Simon Dangur, Deputy Chief Investment Officer for Fixed Income and Head of Fixed Income Macro Investing at Goldman Sachs Asset Management, believes the current favorable inflation data reduces the immediate need for tightening, allowing the central bank to wait and see.
"However, if the geopolitical shock in the Middle East persists over the long term, the Bank's thinking will shift, and a rate hike remains a possibility at the September meeting," Dangur concluded.
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