The Bank of England (BOE) held its interest rates steady at 3.75% today, despite a 6-3 split among Monetary Policy Committee (MPC) members, with three advocating for a rate hike. This marks an increase from two members in June, reflecting ongoing concerns about inflation, which has remained above target for five consecutive years. The BOE’s cautious stance comes amid rising Brent crude prices, which have surged nearly $10 since the last meeting, raising inflationary risks.

Despite the hawkish shift in the voting split, the BOE slightly revised down its inflation forecast, now expecting a peak of 3.2% in Q4, down from 3.5%. Financial markets responded by trimming expectations for a September rate hike to 40%, down from over 50%. This shift is attributed to concerns over economic activity and slack in the labor market, which may limit inflationary pressures moving forward.

The key takeaway is that while the BOE remains vigilant, its current “active hold” approach suggests a prolonged pause on rate hikes, which is contributing to lower Gilt yields and a boost for the FTSE 100, indicating a cautious but optimistic outlook for UK equities amidst fluctuating energy prices.

Source: xtb.com