BoE signals cautious approach amid persistent inflation

The Bank of England's Monetary Policy Committee (MPC) voted 6-3 to keep the Bank Rate steady at 4.25% at its June meeting, as policymakers navigated a challenging environment marked by heightened global uncertainty and persistent inflation.

The decision saw three members favoring a 0.25 percentage point cut to 4%, a slightly different split than the 7-2 anticipated by many investors, who had perhaps become accustomed to last month’s unexpected three-way division among policymakers. This indicates a continuing debate within the Committee regarding the appropriate timing and pace of monetary easing.

The central bank's updated projections suggest that consumer price inflation is expected to remain roughly stable for the remainder of 2025, before gradually easing back toward the 2% target next year.

However, policymakers expressed significant concerns over rising oil prices, primarily driven by the escalating conflict in the Middle East, which could feed into higher energy costs and broader inflationary pressures. Additionally, the potential for trade disruptions stemming from proposed US tariffs adds another layer of uncertainty to the inflation outlook. The central bank emphasized that inflation risks remain two-sided, acknowledging both upside risks from external shocks and potential downside risks from a weakening domestic economy.

Given this complex outlook and the ongoing, albeit slower-than-desired, disinflationary process, the MPC affirmed that a gradual and cautious approach to withdrawing monetary policy support remains appropriate.

This suggests that while rate cuts are still on the table for later in the year, the Bank of England is prepared to be patient and data-dependent, closely monitoring how global events and domestic economic indicators evolve before committing to further adjustments.

The Bank's careful stance is a reflection of its commitment to ensuring inflation returns sustainably to target while supporting economic growth amidst a highly unpredictable global economic and geopolitical landscape.