Newsflash: The Bank of England has left UK interest rates on hold at 4.25%.The decision, which matches City expectations, comes as the Bank weighs up the risks to the UK economy from US trade wars and the conflict in the Middle East, which has pushed oil prices higher in the last week.But it’s a split decision – with six of the nine policymaker’s voting to hold, and three voting for a cut.Details and reaction to follow.

Time to recap….The Bank of England has left interest rates on hold at 4.25%, though it signalled further cuts in the cost of borrowing later this year after “clearer evidence” of rising unemployment amid a slowing economy.Six members of the Bank’s nine-member monetary policy committee (MPC) voted to keep rates on hold while three supported a reduction to 4%, to add to the four quarter-point cuts since last August.The Bank’s governor, Andrew Bailey, said interest rates “remain on a gradual downward path” after “seeing signs of softening in the labour market”.

He cautioned, however, that the world was “highly unpredictable” and it was difficult to predict when interest rates would next be reduced.More here:Chancellor Rachel Reeves backed the Bank, saying it has a difficult job.Several economists predicted the Bank will cut rates, to 4%, in August, with two cuts expected by the end of the year.Shares have dipped in London today, where the FTSE 100 index is down 19 points or 0.22% at 8823 points.

Oil has risen, as the Israel-Iran conflict entered its seventh day; Brent crude is up 1.7% at $78/barrel.Here’s the rest of today’s news:The Bank of England is “skipping” towards an August rate cut, reports analysts at Investec.They explain:The main focus of the minutes appeared to be related to conditions in the labour market.Our takeaway was that the committee seems more convinced that the labour market is indeed loosening, with Bank staff predicting some ‘modest deterioration’ in indicators such as the unemployment rate over the coming months.

For the more dovish on the committee, that appeared to be enough to warrant lowering rates already.However, the more hawkish members seem to want to see more evidence that the looser labour market conditions are translating into lower price growth.Japanese bank MUFG has told clients:The BoE left rates unchanged, as expected.The vote split (6-3) was in line with our expectations but more dovish than the consensus.The key guidance was left unchanged.

The BoE acknowledged softer domestic data but also flagged possible risks from higher energy prices.The MPC is likely to remain divided around risks to inflation from here.We continue to see the established quarterly easing cycle at projection meetings as the path of least resistance.Today’s decision is broadly neutral, to slightly bearish for the pound.We will need further weak labour market data for markets to price a faster pace of rate cuts.

Rachel Reeves has said the government respected the Bank’s decision to leave interest rates on hold.Speaking at The Times CEO Summit, the chancellor says:“We respect independent economic institutions, and the Bank has got an incredibly important but difficult job to do.“We want them to set the monetary policy that is appropriate for meeting the inflation target, because we also saw in the last parliament a double-digit inflation which was so challenging for businesses, but also family finances, which also has a knock on impact on business.”Reeves also tried to take credit for the four cuts to Bank Rate since last August, saying these reductions were:“a world away from the previous parliament, when interest rates went up so sharply because of the poor economic mismanagement of prime ministers and chancellors”.[interest rates did rise in many other countries in 2022 and 2023, after Russia’s war in Ukraine drove up energy costs]On the decision not to rescue the UK's largest fibreglass factory from closure, @RachelReevesMP says: “The answer can’t always be yes - even if there are things we might like to do.

” #TimesCEOSummit pic.twitter.com/5ogr49DLgQChancellor & @MehreenKhn in conversation at #TimesCEOSummit The Chancellor suggesting she kitchen-sinked the tax increases for this Parliament - but Mehreen rightly challenging her on whether that is durable given a potentially revised downward OBR forecast for productivity next… pic.twitter.com/MvpdoafP7GBank of England may eventually cut rates below 3.

50%, predicts Capital Economics’s chief UK economist, Paul Dales:The Bank of England sounded a bit more dovish while leaving interest rates at 4.25% today, despite the extra upside risks to inflation from events in the Middle East.This supports our view that the Bank will cut rates to 4.00% in August and eventually to 3.50% (or perhaps lower).

Bank of England governor Andrew Bailey has cautioned that the BoE is not predicting a rate cut in August.In a video clip released after today’s rates decision, Bailey predicts that the path of interest rates will continue to be ‘gradually downwards’.He says:We still continue to think that although the world is now very unpredictable, unfortunately, due to many recent events, that it’s really conditions in the United Kingdom that are determining where inflation is going to.We’ve seen further evidence that conditions in the labour market are beginning to ease.But inflation has risen, due to increases in regulated prices.

We were expecting that.I do believe that the path of interest rates will continue to be gradually downwards.What we need to see is that evidence of loosening in the labour market gets translated through into inflation now easing over the period to come, particularly as we go into next year, back towards our two percent target.And looking ahead to the Bank’s next meeting in August, Bailey says:“I expect that the path of interest rates will continue to be gradually downwards.Now I’m not giving you a prediction on August by saying that.

In August we will come back and look at all the evidence, as we always do, and we will assess once again whether we are seeing a pattern and a picture emerge which gives us confidence that over the next year, or so, we will see inflation return to our 2% target, which is what we expect.But we need to see the evidence building for that.Under the Bank of England’s remit, the governor has to give an explanation to the chancellor if inflation rises more than one percentage point over its 2% target.So with inflation at 3.4% in May, Andrew Bailey has written to Rachel Reeves.

In the letter, just published, the governor says the increase in CPI inflation is largely due to increases in household energy prices, and “other regulated and administered prices” including water bills regulated by Ofwat and Vehicle Excise Duty.Bailey predicts, though, that the increase in CPI inflation will be temporary, due to a “continued gradual easing of price pressures in the UK”.Reeves has welcomed this prediction, writing in reply:I welcome your assessment that there has been a gradual easing of price pressures in the UK economy and that the recent increase in CPI is expected to be temporary.This has allowed the MPC to cut Bank Rate four times since August 2024, from a peak of 5.25%.

Monetary policy is working as it should to return inflation to target sustainably in the medium term.You can read the minutes of this month’s Bank of England interest rate-setting meeting, here.The Monetary Policy Committee voted by a majority of 6-3 to keep interest rates at 4.25%Find out more: https://t.co/rcGJUYFkWZ pic.

twitter.com/VkO9vZyjgSSimon Dangoor, head of fixed income macro strategies at Goldman Sachs Asset Management, predicts the Bank of England will cut interest rates at its next meeting, at the start of August.The BoE held rates steady, maintaining its “gradual” easing approach.While the recent spike in energy prices and high inflation warrant some caution, the shaky labour market and moderate pay growth suggest that disinflation has further to run.We continue to expect the bank to resume rate cuts in August, followed by a shift to consecutive reductions starting in November, ultimately bringing the bank rate down to 3.

25%.Barret Kupelian, chief economist at PwC, says geopolitical uncertainty is creating a challenge for the Bank:Central banks feel instinctively more comfortable with the demand side of the economy.Nonetheless, it is the supply side that is proving to be more challenging to tackle.An added layer of complication is the fog of uncertainty caused by the geopolitical environment.The clearest illustration is oil, which has climbed from roughly $64 bbl at the end of May to around $74 bbl today.

If that rally embeds itself into wage setting or in household bills, the upside risk to inflation could well push any rate cut further down the calendar.In these murky waters, patience is the Bank’s best compass, steering a steady course between hawkish overreach and premature relief.Marcus Jennings, fixed income strategist for global unconstrained fixed income at Schroders, reckons the Bank should have confidence to cut rates later this year:Market expectations were low for this Bank of England meeting and in the event, it proved to be one of the less volatile moments for the gilt market.The Bank has recently reiterated a gradual approach to rate cuts and the macro developments since the last meeting have broadly played into this view.Unsurprisingly then, the tone of today’s meeting was largely unchanged compared to previous guidance, even if the vote split skewed slightly dovish relative to consensus.

With a nod to more slack in the labour market, it should give the Bank more confidence to continue easing at a gradual pace later this year.Felix Feather, economist at asset manager Aberdeen says today’s vote was “marginally closer than expected”, with three members voting for a cut.The slightly more dovish than expected vote split doesn’t change our view that the Bank of England is most likely to stick to a quarterly pace of cuts going forward in line with its “gradual and careful” guidance.But it does suggest the MPC is somewhat sensitive to weaker labour market data, and serves as a reminder of the downside risks to our rate call.Meanwhile, further escalation of the conflict in the Middle East could push up on UK inflation, which could see the Bank move more cautiously.

Carsten Jung, associate director for economic policy at the IPPR thinktank, argues that the Bank took the wrong decision today:Jung points out that a cut to borrowing costs would have helped many households:The Bank should have continued its rate-cutting cycle, by lowering rates by 0.25 today.This year’s GDP growth has been lower than expected, in large part because interest rates are being kept high for long.Even when considering still elevated inflation, the Bank continues to run an overly restrictive policy, and it is harming ordinary households.But even as price increases are set to slow, many essential goods are still very costly.

The government should do more to reduce the cost of living for households right now.By rebalancing energy bills to lower electricity prices, helping people with energy debt and regulating the additional fees charged to consumers, the government could provide prompt relief - and demonstrate that ministers are proactive in tackling the cost of living.Today’s decision to hold interest rates at 4.25% is a blow to borrowers hoping for lower borrowing costs.Andrew Gall, head of savings and economics at the Building Societies Association (BSA), says:“We still expect further Bank Rate cuts this year, but many first-time buyers will be disappointed by the delay.

Since 2020, mortgage repayments for new homebuyers have risen by around 30%, now accounting for 22% of income [details here], meaning affordability is a major barrier to homeownership.“Building societies continue to find innovative ways to support aspiring homeowners, providing almost 37% of first-time buyer mortgages last year.However, more flexible mortgage regulation is also needed to give lenders more opportunity to offer real help.”What are the chances that the Bank cuts interest rates in August?According to the City money markets, a cut to 4% in August is now a 59% chance, with a 41% possibility that rates are left on hold at 4.25% again.

Two rates cuts by the end of 2025 are still priced in.The pound has dipped following the Bank of England’s interest rate decision.Sterling has slipped to $1.341 against the US dollar, down from $1.343 just before noon.

Traders may be surprised that three Bank policymakers (Dhingra, Taylor and Ramsden) voted to cut rates; City forecasts were for a 7-2 split, not a more dovish 6-3.Sanjay Raja, Deutsche Bank’s chief UK economist, says:Consensus alongside us were expecting a 7-2 vote tally.We flagged the risk of Deputy Governor Ramsden’s dissent in our preview.This risk crystalised.Clearly, Ramsden is putting more weight on recent labour market dynamics.

The Bank of England warns that “global uncertainty remains elevated”, as it explains its decision to leave borrowing costs unchanged today.They say:Energy prices have risen owing to an escalation of the conflict in the Middle East.The Committee will remain sensitive to heightened unpredictability in the economic and geopolitical environment, and will continue to update its assessment of risks to the economy.Explaining today’s decision, the Bank points out that underlying UK GDP growth “appears to have remained weak”, and the labour market has “continued to loosen”.It expects pay growth to slow over the rest of this year, and will remain “vigilant” about the extent to which easing pay pressures will feed through to consumer price inflation