Boe Policymakers Vote 9-0 To Keep Rates on Hold in Face of War Risks

• The Bank of England's interest rate-setters all voted to keep borrowing ​costs on hold and said they were "ready to act" to see off risks from war in the Middle East, prompting investors to ramp up their bets on higher ‌borrowing costs later this year. The BoE's Monetary Policy Committee voted 9-0 to keep Bank Rate at 3.75%, the central bank said on Thursday. Economists polled by Reuters had mostly expected a 7-2 vote to hold rates.
• The MPC said inflation could go as high as 3.5% over the next two calendar quarters, according to BoE staff forecasts, and that it was alert to the risk of higher inflation expectations becoming embedded in the economy. It also nodded to the risks of an economic ​slowdown, which could weaken inflation pressures, but said the bigger risk was one of higher inflation, adding it "stands ready to act as necessary" to keep inflation on track for its 2% ​target.
• Governor Andrew Bailey said petrol prices were already higher and household energy bills would go up later this year if the conflict lasts. Investors moved to price in two ​quarter-point rate hikes by the BoE this year. Yields on two-year British government bonds - which are sensitive to speculation about rates - leapt by a huge 34 basis points on the day, hitting the highest since ​January 2025 at 4.486%.
• Some of the day's surge came earlier on news of more damage to gas infrastructure in Qatar. Bailey later said markets were getting ahead of themselves in assuming rate rises. Rob Wood, a former BoE economist who is chief UK economist at Pantheon Macroeconomics, said the surge in oil and especially natural ​gas prices on Thursday - which came after the MPC's vote on Wednesday - tilted the risks further towards rate hikes.
• Luke Bartholomew, deputy chief economist of investment company Aberdeen, said the hurdle to a return to rate hikes was very high but "the economy could be facing a long wait until the next cut." Shortly after the ‌BoE announcement, the ⁠ECB left interest rates unchanged but signalled it was ready to act to counter risks to growth and from inflation.
• On Wednesday, the U.S. Federal Reserve held interest rates steady and projected a single reduction in borrowing costs this year, although Chair Jerome Powell said uncertainty was high.
• Some of the BoE's MPC members suggested interest rates might need to go up. Catherine Mann said she thought the BoE should consider a longer pause in rates "or even a hike at some point" to stop inflation from getting stuck too high.

(Source: Reuters)