Bank of England holds rates, flags inflation risks ahead
The Bank of England on Thursday kept its policy interest rate unchanged at 3.75%, warning that the ongoing conflict in the Middle East has made the outlook for global energy prices “highly uncertain.”
According to a statement from the central bank, the Monetary Policy Committee voted 8-1 in favor of maintaining the Bank Rate at its current level, while one member supported a 25-basis-point increase to 4%, News.Az reports, citing foreign media.
The Bank of England said that monetary policy is unable to influence energy prices directly, but it will be set in a way that ensures the economic adjustment to those prices occurs in a manner that sustainably achieves the 2% inflation target.
It added that “the policy stance required to achieve this will depend on the scale and duration of the shock, and how it propagates through the economy.”
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The bank noted that UK consumer price inflation has risen to 3.3% and is expected to increase further later this year as higher energy prices gradually pass through the economy.
It also warned about the risk of “material second-round effects” in price and wage-setting behavior, which monetary policy may need to counteract.
At the same time, the central bank pointed out that the labor market continues to loosen and that a weakening economy could help contain inflationary pressures.
Financial conditions have tightened since the outbreak of the Middle East conflict, a development the Bank of England said could help reduce inflation over time.
“Taking all the risks to the economic outlook into account, the Committee judges that it is appropriate to maintain Bank Rate at this meeting,” the statement said.
The committee further stated that it will continue to closely monitor developments in the Middle East and assess how their effects spread through the UK economy.
It also said it “stands ready to act as necessary” to ensure that Consumer Price Index (CPI) inflation remains on track to meet the 2% target in the medium term.
By Nijat Babayev
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