UK Follows US in Holding Rates Steady... Andrew Bailey Warns of Clear Risks

Bank of England Yonhap News Agency

The Bank of England (BOE), the central bank of the United Kingdom, announced on the 18th (local time) that its Monetary Policy Committee had decided to keep the benchmark interest rate unchanged at 3.75% per annum.

Out of the nine members of the Monetary Policy Committee, seven supported holding the rate steady, while two members favored a 0.25 percentage point increase to 4%. As a result, since cutting the rate by 0.25 percentage points last December, the BOE has kept rates unchanged at all four monetary policy meetings held so far this year.

Recently, the UK's consumer price index (CPI) inflation rate has slowed to 2.8%. Despite the decline in international oil prices—driven by the signing of a memorandum of understanding (MOU) for an end to hostilities between the United States and Iran and the promise to reopen the Strait of Hormuz—the BOE emphasized that inflation risks have not been fully resolved.

The Monetary Policy Committee stated, "Following the previous meeting, the CPI inflation rate has fallen to 2.8%, but the impact of rising energy prices is expected to persist this year," adding, "The longer energy prices continue to rise, the greater the risk of genuine second-round effects on price- and wage-setting, which policy must take into account."

BOE Governor Andrew Bailey also commented, "The recent decline in oil prices over the past few days is encouraging, but prices are still higher than before the war," while also noting, "The situation remains unpredictable, and there is a clear risk that high energy prices will persist for a considerable period."

The BOE presented its inflation forecast for the fourth quarter of this year at 3.25%. While this is lower than the 3.6% projected in April, it still exceeds the BOE's long-term inflation target of 2%.

Financial markets reacted to the announcement of the rate hold. The pound fell 0.5% to $1.323 per pound compared to the previous day, while the yield on the 10-year government bond rose by 0.02 percentage points to 4.78%. Currently, interest rate futures markets are reflecting the possibility that the BOE may raise rates one more time by 0.25 percentage points within the year.

Meanwhile, the European Central Bank (ECB) raised its three key policy rates by 0.25 percentage points each on the 11th, and the Bank of Japan (BOJ) also raised its policy rate from "around 0.75% per annum" to "around 1.0% per annum" on the 16th. In contrast, the U.S. Federal Reserve (Fed) kept its benchmark rate unchanged at 3.50–3.75% on the 17th, but signaled the possibility of an additional rate hike within the year.

This content was produced with the assistance of AI translation services.