BoE Freezes Rates at 4.25% While CPI Re-Accelerates
The Bank of England’s Monetary Policy Committee (MPC) kept its main Bank Rate steady at 4.25 percent yesterday, resisting a growing chorus for relief even as inflation flared again and growth sputtered. Minutes published Thursday reveal a 6–3 split—the most dissent since 2020—with Swati Dhingra, Dave Ramsden, and newcomer Alan Taylor pushing for a 25-basis-point cut. Yet Governor Andrew Bailey’s majority held the line, citing “heightened unpredictability” in both the economic and geopolitical sphere. Traders looking for a quick easing cycle were left disappointed, and spot gold promptly pierced US$3,374 per ounce, underscoring investor unease with fiat promises.
The hawkish camp argued that cooling too soon risks entrenching price pressures that have proven sticky. Twelve-month Consumer Price Index (CPI) inflation jumped to 3.4 percent in May from 2.6 percent in March, while core CPI ticked up to 3.5 percent. Services inflation, a gauge closely watched by the MPC, remained an uncomfortable 4.7 percent. Brent crude’s 26 percent surge since May, coupled with an 11 percent rise in European natural-gas prices, suggests cost-push forces aren’t done yet. Although the Bank projects inflation will “drift toward” the 2 percent target in 2026, that horizon keeps inching outward—hardly reassuring for households whose purchasing power has already been clipped.
The BoE Bank Rate remains at a 2 year low, but pressure is building to reduce rates.
Doves countered that the real economy is losing altitude. After a solid 0.7 percent GDP gain in the first quarter, output shrank 0.3 percent in April, and the Bank now sees only 0.25 percent growth for Q2. Payrolled employment fell by 109,000 in May, vacancy rates slipped below equilibrium, and private-sector regular pay growth slowed to 5.1 percent. Most new wage settlements sit between 3 and 4 percent, a trajectory the minutes say is “consistent with a significant decline in wage growth” later this year. With the European Central Bank already trimming rates and the Federal Reserve on pause, dissenters feared the U.K. may be tightening into a slowdown.
Market participants remain skeptical that Threadneedle Street can keep rates elevated for long. The Bank’s own survey shows traders still pricing roughly 50 basis points of cuts by year-end and inflation only returning to target on a three-year view. Meanwhile, the central bank is sitting on a £590 billion gilt mountain—a legacy of the last crisis that quietly expands the money supply whenever proceeds are reinvested. It is little wonder that gold, the classical hedge against monetary experimentation, keeps making new highs even as crypto darlings languish.
“Monetary policy is not on a pre-set path,” the minutes insist, but the widening split among committee members hints at mounting unease over that very lack of direction. For savers and borrowers alike, the message is clear: policy makers are flying through turbulence with limited visibility, and the seat-belt sign may stay lit for some time to come.
