The Bank of England maintains interest rates at 3.75%: Two hawkish officials advocate for a rate hike, while Governor Bailey describes the current "wait-and-see" approach as tightening.

Note that the Bank of England has kept interest rates unchanged at 3.75% and stated that the recent drop in oil prices is "encouraging," despite two policymakers voting in favor of an immediate 25 basis point rate hike due to concerns about ongoing inflation. External member Megan Greene joined the only dissenter in April - Chief Economist Hugh Pill - in voting in favor of immediately raising the base rate to 4%, citing the unstable outlook for prices despite the recent US-Iran truce agreement. The Monetary Policy Committee (MPC) maintained its policy guidance unchanged and revised down its peak inflation forecast for the fourth quarter of this year from 3.6% in April to 3.25%. Bank of England Governor Andrew Bailey said in a written statement released along with the decision, "The recent drop in oil prices is encouraging," adding in a paragraph reflecting his personal views, "The situation remains unpredictable, and there is clearly a risk of energy prices remaining high for a prolonged period." The pound remained on a downward trend against the US dollar, falling over 0.5% to $1.3219, while traders slightly reduced bets on rate hikes, fully digesting expectations of a 25 basis point rate hike this year, with the likelihood of a second hike at about 30%. Luke Bartholomew, Deputy Chief Economist at Aberdeen, said, "We believe the Bank of England will be able to avoid the kind of monetary tightening policy that the European Central Bank has already begun to implement and the Federal Reserve hinted at last night. With two votes in favor of a rate hike, some policymakers are still concerned about potential inflation pressures." Meeting minutes showed that the Monetary Policy Committee unanimously believed that if prices continued to rise, "a robust policy response should be appropriate," as the seven members who voted to keep rates unchanged warned of the risks of second-round effects. The Bank of England is trying to balance suppressing inflation (current inflation rate is 2.8%, above the bank's 2% target) with supporting economic growth in a high unemployment and weak GDP environment. The committee emphasized that "the weakness in demand and labor markets may reduce the intensity of the second-round effects." Official data released just hours before the Bank of England announced its decision showed a loss of 64,000 jobs since the outbreak of the Iran war in February and a drop in regular wage growth in the private sector to its lowest level in five years. Meeting minutes of the Monetary Policy Committee noted that the latest employment data "aligns with a gradual easing in the labor market." Although the Bank of England believes potential growth in the first quarter is 0.2% and will remain at a similar level in the second quarter, GDP in April still decreased by 0.1%. The truce between the US and Iran has eased investors' most pessimistic inflation fears, with oil prices falling below $80 per barrel for the first time in three months this week, lower than the peak of $108 per barrel. However, given the uncertainty about the durability of this 60-day ceasefire agreement, the Bank of England maintained a neutral policy stance, stating that it will "continue to closely monitor the Middle East situation" and that the "committee stands ready to take necessary action to ensure that the CPI inflation rate remains on track to achieve the 2% target in the medium term." Global central bank interest rate decisions diverge Before the Bank of England made this decision, the Federal Reserve had kept rates unchanged on Wednesday but struck a hawkish tone, warning that it would not tolerate high inflation. The European Central Bank raised its own rates by 25 basis points to 2.25% this month. The Bank of Japan raised its benchmark rate by 0.25 percentage points to 1.00% this week, reaching its highest level since September 1995. Bailey, along with external members Alan Taylor and Catherine Mann, described the Bank of England's policy stance as "proactive" in not moving, allowing the Monetary Policy Committee to do the adjustment work in a tightening financial environment. At this week's meeting, most members of the Monetary Policy Committee believed that the tightening of the financial environment since the outbreak of the Middle East conflict had "provided insurance against inflation risks." They said this allowed the Bank of England to keep rates unchanged. Before the attack on Iran in February, the market had expected the Monetary Policy Committee to cut rates this year. Earlier on Thursday, the market was expecting a rate hike, but conditions have eased since March, when traders expected three rate hikes by 2026.