The Bank of England’s Monetary Policy Committee (MPC) has voted 6-3 to maintain the base rate at 3.75% today in a widely expected decision.
Three of the nine MPC members voted at the base rate review to increase the rate by 0.25 percentage points to 4%.
This was one more member than the two who voted for a 0.25 percentage point increase last time, suggesting the mood may be shifting slightly towards an increase.
The base rate has now been held at 3.75% for the fifth time in a row.
In its report today the MPC said: "In response to events in the Middle East, crude and refined energy prices have remained volatile and higher than pre-conflict. The impact of the energy shock on the UK economy remains uncertain.
"Monetary policy cannot influence energy prices but is being set to ensure that the economic adjustment to them occurs in a way that achieves the 2% inflation target sustainably. The policy stance required to achieve this will depend on the scale and duration of the shock, and how it propagates through the economy including via financial conditions."
The MPC said that while CPI inflation has fallen to 2.6% it is expected to rise later this year as the effects of higher energy prices continue to be felt. This would risk "second-round effects" in price and wage-setting, the MPC said.
The MPC added that loose labour market conditions, and higher interest rates faced by households and businesses, may also act to reduce inflation over time.
The MPC reiterated that it would continue to act to ensure that CPI inflation remained on track to meet the Bank's long term 2% target in the medium term.
Experts believe that a rise in base rate could be on the cards in the autumn but for now, with inflation cooling, there is little need to raise the rate.
CPI inflation for June fell back to 2.6% - from 2.8% in May - as inflationary pressures eased, figures from ONS revealed recently. The rate is the lowest since late 2024.
Industry reaction was generally muted but with some concern about longer term prospects.
Daniele Antonucci, chief investment officer at Quintet Private Bank, the parent company of Brown Shipley, said: "The 6-3 vote sends a more hawkish message than markets expected: three members of the Monetary Policy Committee now believe rates should be higher, not lower.
"The rise in hawkish votes shows the debate has shifted from when rates can be cut to whether rates may need to rise again. A third vote for a hike highlights growing concern that higher energy prices could feed through to wages and broader inflation.
"The Bank of England remains divided on whether inflation risks or growth risks deserve greater attention. The Committee appears increasingly split between those focused on a cooling labour market and those focused on inflation credibility. The majority chose patience, but the minority is signalling that inflation remains uncomfortably high after years above target."
Charlie Ambler, co-chief investment officer and partner at wealth manager Saltus, said: “The surge in oil prices poses a direct threat to the Bank’s slow and steady rate cutting cycle. With markets now pricing in two rate hikes by March 2027, the impact of geopolitics on the trajectory of rates cannot be underestimated. While markets will be looking for reassurance amid this uncertain backdrop, any forward guidance will likely remain cautious."
Richard Carter, head of fixed interest research at Quilter Cheviot, said: "The Bank of England has followed the Federal Reserve in holding interest rates at 3.75% despite increasing noise that rate rises are around the corner. Inflation remains uncomfortably above target, with the latest figure registering 2.6% in June, but with the 13% rise in the energy price cap now in effect, that figure is likely to spike once again.
"The market is pricing in at least one interest rate rise in the UK this year, and with three members voting for an increase today and events in the Middle East show no sign of easing the pressure, this won’t change."
• The next Bank of England interest rate decision will be on 17 September.