The Bank of England on Thursday held its policy rate unchanged at 3.75%, warning that the conflict in the Middle East has made the outlook for global energy prices “highly uncertain.”
The Monetary Policy Committee voted 8-1 to maintain the Bank Rate, while one member backed a 25-basis-point increase to 4%, the bank said in a statement.
The central bank said monetary policy cannot influence energy prices, but would be set to ensure that the economic adjustment to them occurs in a way that sustainably achieves the 2% inflation target.
“The policy stance required to achieve this will depend on the scale and duration of the shock, and how it propagates through the economy,” it said.
The bank said UK consumer price inflation has increased to 3.3% and is likely to rise further later this year as the effects of higher energy prices feed through to the economy.
It warned of a risk of “material second-round effects” in price and wage-setting, which monetary policy would need to counter.
However, the bank also noted that the labor market continues to loosen and that a weakening economy could contain inflationary pressures.
Financial conditions have tightened since the Middle East conflict began, a development the central bank said would 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 added that it would continue to closely monitor developments in the Middle East and how their impact propagates through the UK economy.
It said it “stands ready to act as necessary” to ensure CPI inflation remains on track to meet the 2% target in the medium term.
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