The Bank of England held its benchmark interest rate at 3.75% on Thursday, halting a sequence of cautious monetary adjustments as policymakers grappled with a persistent inflation outlook shaped by the ongoing war in Iran.
The decision marks the fourth consecutive meeting where the Monetary Policy Committee has chosen to maintain the status quo, signaling a deepening hesitation to cut rates despite recent softening in energy prices.
Markets are now pricing in a prolonged period of restrictive borrowing costs, as the MPC signals that the path to its 2% target is far from linear.
While the central bank acknowledged that a recent decline in energy costs has lowered its peak inflation expectations compared to April, it cautioned that the cost of living remains set to rise throughout the year.
The fallout from the Middle East conflict continues to complicate the macroeconomic landscape, forcing the MPC to balance temporary price relief against entrenched geopolitical risks that threaten to keep underlying inflation pressures alive.
The pause underscores the central bank's dilemma: while headline metrics may be cooling, the structural impact of the Iran war on supply chains and energy markets prevents a confident pivot toward easing.
Markets are now pricing in a prolonged period of restrictive borrowing costs, as the MPC signals that the path to its 2% target is far from linear.