Bank of England leaves policy rate unchanged, matching forecasts

ISTANBUL

The Bank of England on Thursday kept its benchmark interest rate at 4.25%, in line with the market forecasts.

The move came after four rate cuts since the bank began reducing borrowing costs last August. The bank rate currently is at the lowest level since February 2023, when it was 4%.

"There has been substantial disinflation over the past two years, as previous external shocks have receded, and as the restrictive stance of monetary policy has curbed second-round effects and stabilized longer-term inflation expectations. " the bank said in a statement.

"This has allowed the MPC to withdraw gradually some degree of policy restraint, while maintaining Bank Rate in restrictive territory so as to continue to squeeze out existing or emerging persistent inflationary pressures," it noted.

The bank pointed out that the underlying UK gross domestic product (GDP) growth appears to have remained weak, and the labor market has continued to loosen, leading to clearer signs that a margin of slack has opened up over time.

"Measures of pay growth have continued to moderate and, as in May, the Committee expects a significant slowing over the rest of the year. The Committee remains vigilant about the extent to which easing pay pressures will feed through to consumer price inflation," it said.

Additionally, the bank stressed that global uncertainty still remains elevated with energy prices rising due to an escalation of the conflict in the Middle East.

"Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further," the bank added.

The annual consumer inflation rate in the UK ticked down to 3.4% in May after hitting 15-month high of 3.5% in April.