BOE STATEMENT: BoE maintains Bank Rate at 3.75%, as expected, in 8-1 vote (exp. 9-0); Pill votes to raise Bank Rate by 25bps to 4%

VOTE:

BoE maintains Bank Rate at 3.75% in 8-1 vote
Bailey, Breeden, Dhingra, Greene, Lombardelli, Mann, Ramsden, Taylor vote to maintain Bank Rate at 3.75%
Pill votes to raise Bank Rate by 25 bps to 4%

GUIDANCE:

BoE says policy stance required will depend on scale and duration of energy shock and how it propagates through economy
BoE says it stands ready to act as necessary to ensure CPI inflation remains on track to meet 2% target in medium term
BoE says appropriate monetary policy response would be state-contingent
BoE says more pronounced inflation overshoot as in Scenario C likely to warrant forceful tightening in monetary policy
BoE says less restrictive policy stance would be required in Scenarios A and B than in Scenario C
BoE says some members might prefer to act early as insurance against inflation persistence risks
BoE says other members might prefer more conclusive evidence of inflation persistence before acting

INFLATION:

BoE says Middle East conflict makes prospects for global energy prices highly uncertain
CPI inflation has increased to 3.3%
BoE says CPI inflation likely to be higher later this year as higher energy prices pass through
BoE sees risk of material second-round effects in price and wage-setting, which policy would need to lean against
BoE says weakening economy could contain inflationary pressures
BoE says financial conditions have tightened since conflict began and will help reduce inflation over time
BoE says direct impacts from recent energy supply shock already visible in higher household motor fuel prices
BoE says indirect effects of high energy prices via increased production costs expected to be significant and likely to affect food prices particularly
BoE says second-round effects likely to materialise more quickly via pricing channels than wage-setting
BoE says household short-term inflation expectations have risen
BoE says wage growth had been easing towards target-consistent rates
BoE says private sector wage settlements for 2026 had been largely completed before shock occurred

ECONOMY:

BoE says labour market continues to loosen
BoE says continued weakness in activity would limit strength of second-round effects
BoE says current events are occurring from starting point of lower inflation, weaker demand, looser labour market and restrictive monetary policy than previous energy shock in 2022
BoE says unemployment could rise further owing to weak consumption and households increasing precautionary saving
BoE says energy shocks involve a trade-off between inflation and output
BoE says all members noted financial conditions had tightened materially since onset of conflict
BoE says tighter financial conditions would help feed through to lower inflationary pressures over time

FORECASTS:

Bank staff expected CPI inflation to decline to 3.1% on average in 2026 Q2 before rising back to 3.3% in Q3
BoE says Q3 CPI projection was 1.4 ppts higher than at time of February Monetary Policy Report
BoE says CPI inflation expected to rise somewhat further in Q4
April Market Participants Survey median expectation was for Bank Rate to be maintained at current level this year
Market-implied path for Bank Rate in 15 days to 22 April was upward-sloping, suggesting some increase in Bank Rate this year
BoE says Scenario A assumes energy prices follow market futures curves with no second-round effects from latest energy shock
BoE says Scenarios B and C assume energy prices higher and more persistent than futures paths to varying degrees
BoE says second-round effects are incorporated in Scenarios B and C, and materially so in Scenario C

COMMENTARY:

Pill (lone dissenter):

Pill says prompt but modest hike in Bank Rate would help mitigate upside risks to price stability. Pill says second-round effects could raise UK inflation beyond near term in persistent manner.
But I see the risk of second-round effects in each of these scenarios as skewed to the upside. I recognise that second-round effects may be more modest with a looser labour market.
As someone already concerned about a stalling of the underlying disinflation process even before the latest energy price shock, a prompt but modest hike in Bank Rate will help mitigate upside risks to price stability stemming from a reemergence of intrinsic inflation persistence.

Bailey:

Bailey says softer real economy makes it appropriate to maintain Bank Rate. Bailey places most weight on Scenario B with slightly reduced second-round effects and some weight on Scenario C
If the shock appears to be short-lived or the economy weaker, policy should place relatively more weight on avoiding unnecessary contraction in activity.
If second-round effects are likely to be greater, policy should focus on returning inflation back to target more quickly.

Others:

Breeden says financial conditions provide sufficient restrictiveness to guard against current risk of second-round effects. Breeden says she would stand ready to react forcefully if Scenario C materialised
Dhingra says swift resolution and materially lower energy prices would warrant further reduction in Bank Rate, possibly quickly. Dhingra says worsening situation may warrant some tightening, but there is a limit to acceptable output loss
Greene says yield curve has tightened enough to give time to hold and learn. Greene says an increase in Bank Rate may be necessary in upcoming meetings
Lombardelli says holding rates provides appropriate restrictiveness while learning more about scale and propagation of shock. Lombardelli says Scenario C is plausible and would require policy to respond more forcefully to inflationary pressures
Mann says she expects greater additional second-round effects than in the scenarios. Mann says continued rising inflation outturns and expectations would lead her to expect to increase Bank Rate
Ramsden says holding Bank Rate is most appropriate response to ongoing uncertainty
Ramsden says he would consider raising Bank Rate under Scenario B and would favour a less restrictive path if downside risks in Scenario A materialise
Taylor says current scenario would entail a hold for some time, then a move to neutral or accommodative stance. Taylor says neutral at 3% means it makes sense to hold for risk-management reasons and because tighter financial conditions are amply restrictive