The Bank of England's Monetary Policy Committee (MPC) voted 7-2 to maintain the interest rate at 3.75%, marking the fourth consecutive meeting without a change. Chief Economist Huw Pill and external MPC member Megan Greene advocated for a 25 basis point rate hike, suggesting ongoing concerns within the committee regarding inflation.
This decision comes after the Bank of England had previously lowered its forecast for peak inflation this year to just over 3.25% in June, down from an April prediction of 3.6% to 3.7%. However, inflation in June still registered at a 15-month low of 2.6%, and private-sector wage growth was at 2.9%, its weakest since 2020. Despite this, wage growth for the three months to April accelerated to 4.4%, exceeding forecasts, and excluding bonuses, remained steady at 3.4% but still topped expectations. The MPC continues to monitor these figures, particularly upcoming 2027 pay settlements, for signs of persistent inflationary pressure.
The Bank of England is also addressing the impact of its bond sales program (quantitative tightening). In 2025, it reduced the pace of bond sales to £70 billion a year from £100 billion, and markets anticipate a further slowdown to £50 billion by September. Research suggests that quantitative tightening may have exerted more upward pressure on gilt yields than initially estimated. Governor Andrew Bailey stated the BoE would keep a close watch on wage and price increases not directly tied to energy prices. Despite some dissent, the majority of the MPC believes current rates are sufficient to gradually lower inflation alongside a weakening labor market.
