Bank of England holds Bank Rate at 3.75% as energy prices cloud inflation outlook

The Bank of England kept its key interest rate at 3.75% for a fifth time this year, as a bigger-than-expected slowdown in UK inflation gave policymakers room to assess whether renewed fighting involving Iran will create fresh price pressures through higher energy costs. The Monetary Policy Committee voted 6-3 to hold rates, with three members favoring a quarter-point increase to 4%. Consumer price inflation slowed to 2.6% in the 12 months through June from 2.8% a month earlier, according to the Office for National Statistics, but remained above the BoE’s 2% target for a 21st straight month. The committee said the effect of the energy shock on the UK economy remained uncertain and that any rate changes needed to meet its inflation goal would depend on the scale and duration of the shock and how it spreads through the economy. Huw Pill said he remained concerned about “more insidious second-round effects” in wage and price setting that could make inflation more persistent. Oil prices have surged since renewed attacks involving the United States and Iran raised fears over disruption in the Strait of Hormuz, with Brent crude rising to more than $100 a barrel on July 23 from less than $71 three weeks earlier before easing to about $92 on Thursday. Economists are also watching whether new Prime Minister Andy Burnham’s tax and spending plans to shield consumers and support growth add to inflation.