Bank of England holds interest rates at 3.75% as inflation fears mount
Summary
The Bank of England has decided to keep interest rates at 3.75% due to worries that the ongoing conflict in Iran could push inflation above 4% next year. The bank highlighted that higher oil prices caused by the war might increase the cost of living, but it aims to keep inflation temporary and close to its 2% target.Key Facts
- The Bank of England’s monetary policy committee voted 6-3 to keep interest rates at 3.75%.
- Inflation in the UK is expected to peak at about 3.2% later this year but could rise to 4.5% by mid-2027 if the Iran war worsens and oil prices stay above $100 a barrel.
- Brent crude oil prices recently rose above $100 a barrel but were trading above $90 at the time of the report.
- UK inflation fell to 2.6% in June, down from a peak of 3.8% last year.
- The Bank noted the UK’s weak economic growth and rising unemployment might limit inflation growth despite the war.
- The UK government plans to lower electricity bills by £45 a year and remove VAT on them, which may reduce inflation by 0.1 percentage points.
- Three members of the Bank’s committee wanted to raise rates to 4% immediately due to inflation concerns.
- Financial markets expect borrowing costs to rise to 4% later in the year.
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