"It is an active hold today, not a passive one," Governor Andrew Bailey said, as the Bank of England paused its policy rate at 3.75% and warned higher energy costs from the Middle East are pushing up inflation. The Monetary Policy Committee split 8-1, with chief economist Huw Pill voting for a 25 basis-point rise to 4%. Officials said the pause replaces expected rate cuts while the BoE gauges second-round effects on wages and food prices.

Decision and the numbers

The Bank of England left Bank Rate at 3.75% after its April meeting. The vote was eight to one. Huw Pill, the bank's chief economist, voted for a 0.25 percentage point rise to 4%.

At a press conference, Governor Andrew Bailey said the bank now projects inflation will reach a little over 3.5% by the end of the year. Bailey tied that outlook to the energy shock from the Middle East. He said monetary policy can't stop higher global energy prices hitting the UK economy.

Official data show headline consumer price inflation rose to 3.3% in March, up from 3.0% in February. That recent rise feeds into the BoE's projection for later this year.

Why the bank called it an "active hold"

Bailey described the committee's decision as an active hold. He said the pause is a deliberate policy choice. "It is an active hold today, not a passive one," he said.

Bailey also warned the bank was not sending a signal that rates are definitely going up.

The central bank set out three scenarios for how the shock could play out. In all three, inflation rises and unemployment reaches at least 5.5%. The bank declined to attach probabilities to the scenarios, saying energy volatility makes precise odds impossible.

The BoE said one scenario looks more plausible than another. Bailey said the energy profile in scenario B seemed likelier than scenario A because of damage to infrastructure in Qatar. That damage, he said, will take time to repair and keeps upward pressure on oil and gas prices.

Energy shock and second-round effects

The bank traced the shift in its outlook to higher global energy costs since late February. Officials pointed to the sharp run-up in crude oil prices to above $100 a barrel after the conflict began on Feb. 28. The effective closure of the Strait of Hormuz and damage to regional facilities have squeezed supply.

Mastheads

Bailey flagged two transmission channels for the shock. The first is direct: higher pump prices and higher gas and electricity bills. The second is indirect: rising wholesale energy costs feed into food prices and firms' cost bases, which can lead to higher wages over time.

"Initial indirect effects of inflation are likely to be largest for food prices," Bailey said. He added that the size of second-round effects is uncertain and will take time to build. "It would be a mistake to wait for second round effects before acting, that would be too late," he said.

The bank also noted that most annual wage settlements are already set. That means pay data will take time to reflect any fresh inflationary pressure.

Paths for policy

Bank officials sketched two broad policy paths. One path keeps Bank Rate where it's and avoids further tightening. The other path requires higher rates if the energy shock proves prolonged and feeds higher inflation into wage and price-setting.

Bailey said there are paths "where we don't have to increase rates, and paths where we do." He warned that a prolonged spike in energy prices could push the Bank Rate higher. At the same time, not cutting rates as had been expected gives the committee room to absorb some inflation pressure without immediate hikes.

Those remarks reflect a core trade-off. If the shock is short and energy prices ease, the current stance could be enough. If the shock persists and pushes wages and prices higher across the economy, policy will need to respond.

The bank's scenarios show clear consequences for households and the labour market. All scenarios raise unemployment to at least 5.5% as inflation moves higher. The bank also warned that food prices are likely to see early indirect pressure from the energy shock.

For households, that means higher living costs from fuel and food. For firms, higher input costs could squeeze margins or feed into higher prices. The BoE's shift also affects the outlook for interest-rate expectations and for staged rate cuts that markets and policymakers had anticipated earlier in the year.

Bailey said the BoE had room to accommodate some of the inflationary impulse by pausing planned cuts. He argued that the decision buys time to see how wage settlements and other second-round forces evolve.

The Bank of England's message landed alongside similar moves at other central banks. The European Central Bank also left rates unchanged and said upside risks to inflation had intensified. Both institutions linked higher energy costs from the Middle East to the change in their posture.

That common assessment shows the cross-border nature of the shock. Higher global oil and gas prices are raising inflation everywhere, and national central banks are adjusting policy stances to the new price profile.

By keeping Bank Rate at 3.75% and stressing uncertainty, the BoE has narrowed the path for swift cuts this year. Markets and borrowers will watch data on inflation, wages and food prices closely. The bank said it won't wait for conclusive second-round evidence before acting. That raises the bar for a quick return to easing if risks to inflation remain elevated.

Huw Pill's single vote for a 25 basis point rise signals there's at least one member ready to tighten further if the bank judges the shock to be larger. Other committee members judged the risks differently at the April meeting.

Related Articles

"It is an active hold today, not a passive one," said Andrew Bailey, governor of the Bank of England.

This article was created with AI assistance.