Interest rates held as Bank warns of impact of high energy prices

Interest rates held as Bank warns of impact of high energy prices 2 hours ago Share Save Add as preferred on Google Kevin Peachey Cost of living correspondent Getty Images Uncertainty over the impact of high energy prices has led policymakers at the Bank of England to hold interest rates at 3.75%. It is the fourth meeting in a row that the Monetary Policy Committee (MPC) has decided to leave rates unchanged. Bank governor Andrew Bailey said recent drops in oil prices were "encouraging" but high energy prices during the war had still left "inflationary pressure in the pipeline". The base rate is the primary tool used to control inflation and influences the cost of borrowing as well as the interest paid to savers. The latest hold comes as the situation in the Middle East continues to be watched closely. Policymakers said that oil prices remained higher than before the conflict and had "continued to be volatile". However, they said inflation expectations by the end of the year were now lower than the Bank had thought in April. Interest rate policy, to maintain low inflation, would depend on the "scale and duration" of the energy price shock and how much that filtered through to the wider economy through prices and wage demands, they said. "Oil prices have fallen in recent days, and that's encouraging," Bailey said. "Whatever happens in the future, the higher energy prices of the past four months mean there's already some inflationary pressure in the pipeline. "The Bank's job is to make sure that doesn't turn into sustained inflation above our 2% target." At the last meeting in April, the committee members voted 8-1 for a hold, with Huw Pill, the Bank's chief economist, the only one to vote for a rate rise. This time, the vote was 7-2, with Megan Greene voting alongside Pill for an increase in the rate to 4%. She highlighted the uncertainty over the impact on households and businesses of higher energy prices. The MPC met just before the US-Iran peace deal was signed and will meet again at the end of July, when its success and longevity should be clearer. Speaking later, Bailey said he was "encouraged" by recent developments in the Middle East. "Energy prices have come down quite a lot, but they're still above where they were before this conflict started. Inflation is higher than we expected it to be," he said. "I think holding is the right position to be in at the moment for that, so I think it's a sensible decision in the light of the news." The peace deal, which was signed on Wednesday, could lead to the reopening of the Strait of Hormuz. Should oil start to flow freely again through the vital waterway - which normally carries a fifth of the world's oil and gas supplies - then concerns over a pick-up in inflation would be eased. Price rises are still expected to accelerate in the UK, given the delayed impact of higher wholesale energy prices on domestic gas and electricity prices. Millions of UK households' energy bills are governed by regulator Of