UK Unanimously Holds Key Interest Rate, Says "Ready to Respond to Inflation"
Held at 3.75% with First Unanimous Decision in Four and a Half Years
"Monitoring Inflationary Pressure from Energy... Ready to Respond if Needed"
The Bank of England (BOE), the central bank of the United Kingdom, has kept its benchmark interest rate unchanged at 3.75% per annum. All members of the Monetary Policy Committee voted in favor of holding the rate, marking the first unanimous decision in four and a half years.
On March 19 (local time), the BOE's Monetary Policy Committee (MPC) decided to maintain the key interest rate at its current level. According to Bloomberg, it is unusual for all nine members of the committee to be in complete agreement.
In its statement, the BOE said that it is closely monitoring the impact of rising energy prices on inflation due to the ongoing war in the Middle East. The central bank noted, "While monetary policy cannot directly control global energy prices, we will respond as necessary to keep the inflation rate at our 2% target," emphasizing, "We are prepared to take action if needed."
The latest statement omitted language hinting at a possible rate cut that had been included previously. Governor Andrew Bailey stated, "Our mandate is to bring the inflation rate back to 2%," and indicated that a response may be necessary if energy prices continue to rise.
Swati Dhingra, who is considered a dove on the committee, also noted that an interest rate hike could be necessary if energy supply shocks persist. Committee member Catherine Mann similarly assessed that the possibility of a long-term hold or even a rate increase is now more likely than a cut.
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While financial markets had initially expected the rate to remain unchanged, expectations for a rate cut have weakened since the outbreak of war, and the possibility of a rate hike is now being highlighted. In the interest rate futures market, the probability of two rate hikes within the year was previously priced in at about 50%, but following this decision, expectations have strengthened, with the potential for up to three hikes now being partially factored in.
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