The Bank of England has held the cost of borrowing at 3.75% as it hardens its position on the impact of hostilities on the economy.
The Monetary Policy Committee (MPC) voted 6 -3 to leave rates unchanged, with more members voting for an increase. Last month the vote was 7-2.
There was widespread expectation the interest rate would be held at its lowest level since February 2023, despite falling inflation.
On-off peace talks between the US and Iran has seen oil prices yo-yo between $70 and $100 a barrel since the conflict began at the end of February.
Megan Greene, one of the three who voted for a rise, said that while there was uncertainty because of the Iran war, other “risks loom” over inflation.
Economic conditions have remained fairly robust. The UK’s economy grew 0.1% in May, marking a slight rebound from a small contraction in April.
Over the three months to May, the Office for National Statistics (ONS) said the economy had grown by 0.7% compared with the previous three-month period.
Felix Feather, Economist, at Aberdeen Group, said: “With the vote split marginally tighter than expected at 6-3, this was a slightly more hawkish Bank of England hold than expected.
“The increase in dissenters suggests concern about inflation risks is spreading within the MPC and increases the chance that rates could move higher if inflation doesn’t continue to moderate.
“But we still see a path to avoiding rate hikes. The BoE’s next full monetary policy report meeting won’t come until November leaving plenty of opportunity for the situation in the Middle East to deescalate before the MPC’s hand is forced.
“Still, risks to our forecast for rates to remain on hold until the end of the year are very much stacked to the upside.”
Isaac Stell, investment manager at Wealth Club, commented: “The decision will come as little surprise, with financial markets having largely priced in no change ahead of today’s announcement. Inflation eased in June, helped by lower energy prices, but the Bank continues to tread carefully as global events complicate the outlook.
“The BoE has judged that lingering inflationary pressures, set against an increasingly sluggish economic backdrop, warrant keeping rates on hold for now.
“Markets are currently pricing in just one further 0.25% increase this year. However, with one crisis seemingly giving way to the next, forecasting the path of interest rates remains a hazardous exercise. If recent years have taught us anything, it is that in monetary policy, the only certainty is uncertainty.”
Greig Brown, mortgage director at Aberdein Considine, said: “Today’s decision to hold the Bank Rate will provide a degree of stability for homeowners and prospective borrowers at a time when affordability remains a key consideration.
“While mortgage rates are influenced by wider market expectations rather than the base rate alone, maintaining the current rate should help support confidence and provide some reassurance for those considering their next move.
“For anyone coming to the end of a fixed rate, looking to move home, or simply reviewing their finances, now is a good time to seek professional mortgage advice to understand the options available and ensure they’re on the most suitable deal for their circumstances.”
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