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The Bank of England (BoE) announced today that it would maintain its benchmark interest rate at 4.75%, marking the third consecutive meeting without a change. The decision comes as the UK economy shows conflicting signals, with inflation remaining stubbornly above the central bank’s 2% target while economic growth stagnates. The Monetary Policy Committee (MPC) voted 6-3 in favor of holding rates, with the minority advocating for a 25-basis-point cut to stimulate borrowing and investment.
Governor Sarah Hughes emphasized that while headline inflation has eased to 3.1% in May—down from 3.4% in April—core inflation, which excludes volatile food and energy prices, remains elevated at 3.8%. She noted that persistent wage growth, currently at 5.2% year-on-year, continues to fuel domestic price pressures. The BoE’s updated forecasts suggest inflation may not return to target until mid-2026, later than previously anticipated.
The British pound reacted with modest volatility, initially dipping 0.3% against the US dollar before recovering as traders digested the central bank’s cautious tone. Analysts at Goldman Sachs suggest that the BoE is likely to delay rate cuts until at least September, contingent on clearer disinflationary trends. Meanwhile, business groups have expressed frustration, arguing that high borrowing costs are stifling investment. The Confederation of British Industry (CBI) reported that 42% of firms have postponed expansion plans due to financing constraints.
On the political front, Chancellor Rachel Reeves reiterated the government’s commitment to fiscal discipline but called for “targeted interventions” to support struggling households. With a general election looming next year, pressure is mounting on the BoE to balance inflation control with economic growth. Economists warn that premature easing could reignite inflationary pressures, while excessive tightness risks pushing the UK into a deeper slowdown.
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