Bank of England keeps main U.K. interest rate at two-year low of 4.25%

A general view of the Bank of England in the City of London, Thursday, March 17, 2022. (AP Photo/Alastair Grant)

LONDON — The Bank of England kept its main interest rate at the two-year low of 4.25 per cent on Thursday as fears grow that the conflict between Israel and Iran will escalate.

The decision by the bank’s nine-member Monetary Policy Committee was widely anticipated. Six of the members voted to keep rates unchanged while three backed a quarter-point reduction.

With U.K. inflation at 3.4 per cent — the bank’s target rate is two per cent — policymakers were mindful of how the conflict in the Middle East will impact on oil prices, which have risen sharply in recent days to over US$75 a barrel.

The prevailing view at the bank was that inflation would remain high over the coming months but start to head back towards next year. The uptick in oil prices has the potential to scupper that expectation.

“The world is highly unpredictable,” bank governor Andrew Bailey said.

Uncertainty over the level of tariffs U.S. President Donald Trump will impose around the world is also clouding the outlook for prices around the world. Though the U.K. looks like it will be spared a raft of tariffs, the backdrop for the global economy remains highly uncertain.

The tariff issue is at the forefront of concerns at the U.S. Federal Reserve, which on Wednesday kept its key rate unchanged, to the chagrin of Trump, who has been urging the central bank to join others, such as the Bank of England and European Central Bank, and cut borrowing costs.

Since its first quarter-point rate cut last August from the 16-year high of 5.25 per cent, the Bank of England has played it steady, reducing interest rates every three months. That would mean the next reduction is in August.

Pan Pylas, The Associated Press