By Suban Abdulla and David Milliken
LONDON (Reuters) -The Bank of England held interest rates at 4.25% as expected on Thursday but said it was focused on risks from a weaker labour market and from higher energy prices as conflict escalates in the Middle East.
The Monetary Policy Committee voted 6-3 to keep rates on hold. Deputy Governor Dave Ramsden joined Swati Dhingra and Alan Taylor to vote for a quarter-point reduction.
The three policymakers highlighted “a material loosening in labour market conditions” after official figures showed the highest unemployment rate since 2021 and weaker wage growth.
It was a bigger split than forecast in a Reuters poll of economists who had expected a 7-2 vote to leave rates unchanged after the British central bank cut borrowing costs last month for the fourth time since August 2024.
“Interest rates remain on a gradual downward path,” Governor Andrew Bailey said in a statement, although policymakers said in minutes of the meeting that interest rates were not on a pre-set path.
“The world is highly unpredictable. In the UK we are seeing signs of softening in the labour market. We will be looking carefully at the extent to which those signs feed through to consumer price inflation,” Bailey said.
Bailey said in a later video clip that he was not giving a prediction of an August cut.
The central bank said geopolitical tensions as it held its meeting over the past week were not key to June’s decision to hold rates, but would be closely monitored.
“Energy prices had risen owing to an escalation of the conflict in the Middle East. The committee would remain vigilant about these developments and their potential impact on the UK economy,” the BoE said.
Nearly all 60 economists polled by Reuters before the BoE’s June meeting had predicted it would keep Bank Rate on hold at 4.25%, with the next cut likely in August and a further reduction expected in the final three months of this year.
Sterling fell briefly against the U.S. dollar before recovering. Economists said interest rate futures were pricing in a near-80% chance of an August cut, slightly higher than before the decision.
“We think data surprises need to be to the upside from here to prompt a ‘hold’ decision,” HSBC economist Elizabeth Martins said.
The BoE kept its “gradual and careful” guidance on the pace of further rate cuts.
Staff analysis was less pessimistic than in May about the potential impact of U.S. President Donald Trump’s tariffs on the global economy, but said trade uncertainty would still continue to have an impact on the UK economy.
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