Bank of England holds rates at 3.75% as Iran truce offers cautious relief

Governor Andrew Bailey described himself as "very encouraged" by the diplomatic breakthrough, yet the Monetary Policy Committee voted 7-2 to maintain current borrowing costs. While external member Megan Greene joined Chief Economist Huw Pill in advocating for a quarter-point increase, the majority of the committee preferred to remain in an "active hold" position. This strategy avoids the aggressive tightening seen recently at the European Central Bank and the Bank of Japan.

Despite the newfound stability in the Strait of Hormuz, the bank anticipates inflation will climb above 3.25% in the year’s final quarter. Bailey warned that previous energy price spikes remain embedded in the economic pipeline. Meanwhile, the central bank slightly upgraded its growth forecast to 0.2% per quarter, though a cooling labor market and slower wage growth complicate the outlook. Allan Monks of J.P. Morgan cautioned that by delaying, the bank risks falling behind the curve if inflationary pressures prove more durable than current models suggest, particularly as household inflation expectations remain at their highest levels since 2009.