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The ‘Old Lady of Threadneedle Street’ has chosen to wait, though not unanimously.
The Monetary Policy Committee voted by a majority of six to three on Thursday to leave borrowing costs unchanged, with the dissenting trio pushing for a quarter-point increase to 4%.
The decision puts the Bank of England at odds with the Federal Reserve and the European Central Bank, both of which have tightened within the past week.
Despite holding, the central bank expects the situation to worsen before it improves.
Inflation “is likely to rise further over coming quarters,” the committee said, pointing to crude and refined energy prices that have climbed again since its last meeting and remain “more volatile and higher than pre-conflict.”
Watching for second-round effects
The case for holding rests on what has not yet happened.
“There has been little evidence so far of material second-round effects in price and wage-setting,” the statement read, meaning expensive energy is not yet feeding into broader wages and prices.
However, that reprieve may be temporary.
The risk of such effects “is greater the longer higher energy prices persist or are more volatile,” the committee warned, adding that risks to the inflation outlook are “tilted to the upside, and more so than at the time of the July Monetary Policy Report.”
Brent crude and UK wholesale gas prices have risen 36% and 78% respectively since July, with Brent at $106 a barrel and gas at 207 pence per therm on 14 September.
Refinery pressures have kept crack spreads, the gap between refined fuel prices and crude, well above pre-conflict levels.
Economic activity has held up slightly better than expected, while a soft labour market and the higher borrowing costs households and businesses have faced since the conflict began should bring inflation down over time.
A crowded week for central banks
The Fed raised its benchmark on Wednesday to a range of 3.75% to 4%, its first increase since 2023 and a unanimous decision, while signalling more to come.
The ECB lifted its deposit rate to 2.5% last week.
The sequence concludes on Friday with the Bank of Japan, where markets expect a hike.
That would leave the Bank of England as the only major central bank to have stood still this week, though on Thursday’s evidence not by much.
Additional sources • AP