LONDON (AP) — The Bank of England opted to keep its benchmark interest rate unchanged at 3.75% on Thursday, as inflation pressures facing the British economy have begun to ease following an agreement between the United States and Iran to bring their conflict to an end.
The decision came as little surprise to observers after new data revealed that inflation in May did not climb as forecasted, instead remaining flat at 2.8%.
While that figure still exceeds the bank’s 2% target, it sparked optimism that the surge in oil and gas prices — which followed the outbreak of the Iran war on February 28 — may not have pushed inflation as high as many had feared.
Economic analysts believe the bank’s rate-setters will likely hold off on any rate increases in the months ahead, provided that the recent drop in energy costs continues.
Andrew Bailey, the bank’s governor, described the recent decline in oil prices as “encouraging,” though he acknowledged they remain elevated compared to pre-war levels.
“Whatever happens in the future, the higher energy prices of the past four months mean there’s already some inflationary pressure in the pipeline,” Bailey said. “The Bank’s job is to make sure that doesn’t turn into sustained inflation above our 2% target.”
Despite the decision to hold rates steady, the vote was not unanimous. Two of the nine members of the Monetary Policy Committee expressed enough concern about those lingering pipeline pressures that they cast votes in favor of a quarter-point rate increase.
