UK holds rates at 3.75%

EWU bank of England policymakers vote 6-3 to hold rates at 3.75% (reuters poll: 7-2 vote to hold at 3.75%) Mpc members Greene, pill and mann voted to increase rates by 0.25 percentage points BOE mpc: impact of energy shock on UK remains uncertain, committee ready to act as necessary BOE: CPI could reach 3.2% in Q4 2026 (june minutes: a little above 3.25% in Q4 2026) BOE's bailey: inflation has fallen faster than we expected but will climb again later this year; BOE will ensure increase is temporary BOE forecast shows CPI to fall below 2% target in Q1 2028 (no Central forecast in April) - Policy stance will depend on scale and shock of Iran war and how it spreads through economy - Little sign of second-round effects so far but caution needed; there have been clear signs of disinflation in recent data - Risks to inflation forecasts are tilted to upside but scope remains for outlook to change materially depending on Iran war - Strong demand for AI components and El nino pose upside risks to inflation as well as Iran war - Policy could need to react before inflation persistence risks Materialise conclusively - Members who backed hold decision believe tighter financial conditions allow more time to see evidence on inflation risks - Members who backed hold decision recognise need for higher rates if signs of material second-round effects emerge, but strategy could change if risks subside durably - Members who wanted a rate hike fear material second-round effects, risk management approach is appropriate BOE Central forecast shows CPI in Q1 2027 at 3.2%, 1.7% in Q1 2028, 1.9% in Q1 2029 BOE Central forecast based on market expectations for energy prices and rate which shows one quarter-point hike in Q4 and another in 2027 BOE sees underlying Q2 GDP growth of +0.1% (june: around +0.2%), expected to slow to around 0% in Q3; headline Q2 GDP growth seen at 0.3% BOE forecasts unemployment rate to average 5.0% in 2026, 5.3% in 2027, 5.2% in 2028 BOE forecasts GDP growth in 2026 at +1.1%, 2027 +1.1%, 2028 +1.7% under Central projections BOE estimates private-sector regular wage growth Yy in Q4 2026 3.0%, Q4 2027 3.1%, Q4 2028 3.1% - Sees CPI in Q3 2027 in adverse outlook scenario seen at 4.1%, 2.4% in milder scenario BOE staff: estimated total increase in 10-year gilt rates from qt 20-30 basis points vs 15-20 bp estimate a year ago Rpt-top alert-bank of England policymakers vote 6-3 to hold rates at 3.75% (reuters poll: 7-2 vote to hold at 3.75%)