Bank of England holds base rate at 3.75%

The Bank of England (BoE) has chosen to hold interest rates at 3.75 per cent as uncertainty continues surrounding the economic impact of the conflict in the Middle East.

The central bank’s latest decision, widely expected by economists, will keep the base rate at its lowest level since February 2023.

At its meeting this week, the nine members on the BoE’s Monetary Policy Committee (MPC) voted by a majority of eight to one to maintain rates at 3.75 per cent. One member voted for an increase to rates by 0.25 per cent, which would have taken the base rate up to four per cent.

In its report published today, the MPC said that the conflict in the Middle East means that prospects for global energy prices are “highly uncertain”.

“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 two per cent inflation target sustainably,” the MPC’s report said. “The policy stance required to achieve this will depend on the scale and duration of the shock, and how it propagates through the economy.”

The Office for National Statistics (ONS) announced earlier this month that the UK’s rate of inflation climbed to 3.3 per cent for the year to March, and the BoE today warned inflation is “likely to be higher later this year”, as the effects of higher energy prices pass through.

In the wealth management sector, chief investment analyst at Charles Stanley, Rob Morgan, commented that the UK is “acutely sensitive to energy and import costs”, and that any move to cut rates would likely be met by weakness in the pound.

“It means a holding pattern for rates until there is more clarity,” Morgan said. “Market pricing continues to lurch between scenarios of renewed hikes and delayed cuts, highlighting how sensitive investors are to small shifts in central bank language.

“Ultimately, though, the path for policy hinges on one unknowable variable: how long the conflict lasts and how severely it disrupts energy markets. If the shock proves temporary, the MPC can dust off its easing bias. But a prolonged period of elevated prices would force an unenviable choice – stamp down on inflation or cushion short term economic pain for a vulnerable economy.”

Co-chief investment officer at wealth management firm Saltus, Charlie Ambler, added: “For investors, periods like this are exactly when portfolio discipline earns its keep.

“Geopolitics is reshaping the rate outlook in real time, and the temptation to react can be strong. But well-diversified portfolios built around quality assets are designed for moments of uncertainty, not just calm ones. We continue to see selective opportunities emerging in interest rate sensitive sectors and UK equities.”

The BoE will announce its next vote on the base rate on 18 June.

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