Bank of England leaves interest rates on hold at 5.25%

May 9 (UPI) -- Britain's central bank kept interest rates on hold on Thursday, saying it needed to see more proof that inflation was falling before cutting the cost of borrowing.

The Bank of England's monetary policy committee voted in a split 7-2 decision to maintain its base rate at 5.25%, despite annual inflation falling to 3.2% in March from a peak of 11.1% in October 2022, Threadneedle Street said in a news release.

The bank said the pace at which prices were rising remained above its 2% target and while it expected inflation to return to target in the next couple of months, it was concerned about "upside risks" from geopolitical factors, including potential impacts on the oil price from events in the Middle East.

"Elevated" services consumer price inflation running at 6% in March, historical ongoing tightness in the labor market and volatility fears around pay growth in the private sector remained areas of concern, leading the bank to forecast an inflation bounce back to 2.5% by year-end due to "unwinding of energy-related base effects."

The bank, which raised rates to their current 16-year-high in August, said the seven MPC members believed maintaining the current restrictive monetary policy stance was warranted as it "was weighing on activity in the real economy, was leading to a looser labor market and was bearing down on inflationary pressures."

They differed on the extent of the evidence they would need to see to warrant a cut in Bank Rate in the face of bank forecasts of 0.4% and 0.2% economic growth for the first and second quarters of the year but agreed on the need to "monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole."

"On that basis, the Committee will keep under review for how long Bank Rate should be maintained at its current level," the bank said.

However, speaking at a news conference, Bank of England Gov. Andrew Bailey said the inflation numbers were "encouraging" and that he was "optimistic things were moving in the right direction," sparking speculation of a rate cut at the bank's next meeting June 20, although August or September were a more realistic timeline.