LONDON, April 30 (Xinhua) -- The Bank of England (BoE) has maintained its benchmark interest rate unchanged at 3.75 percent considering the effect of sharp energy price rises triggered by the Middle East conflict, Britain's central bank said in a statement Thursday.
At its meeting ending on Wednesday, the BoE's Monetary Policy Committee (MPC) voted by a majority of eight to one to maintain the rate. One member voted to increase the rate by 0.25 percentage points to 4 percent, according to the statement.
The bank considered multiple factors affecting the British economy. It underlined that the conflict in the Middle East is disrupting the transportation and supply of energy, raising its price and pushing up households' motor fuel costs and also leading to expected increase in utility bills.
Some direct impacts from the recent energy supply shock were already visible, with CPI inflation having increased to 3.3 percent in March, according to the Minutes of the MPC meeting.
It said the CPI projection for the third quarter of this year is 1.4 percentage points higher than at the time of the bank's February Monetary Policy Report.
The MPC argued that the indirect effects of high energy prices via increased production costs are also expected to be significant, and likely to affect food prices particularly, noting CPI inflation is expected to rise further in the fourth quarter.
Emphasizing on the knock-on effects of energy price rises, the bank said it is likely to make businesses increase their own prices to cover the costs, while workers may ask for higher wages due to rise of bills.
The impact on the economy and inflation will depend on how much energy prices go up and how long they stay raised, the bank said, noting that it will also depend on how much pressure businesses feel to increase wages and prices.
BoE's April Monetary Policy Report set out three scenarios illustrating a range of possible outcomes for the UK economy. In the worst scenario with larger energy price shock and stronger second-round effects, it forecast inflation could peak at over 6 percent at the start of 2027.
The MPC said it was attentive to the risk of second-round effects in wage and price-setting and argued that in light of the uncertainty about the strength of second-round effects, monetary policy would need to balance the costs of leaning too little against the effects versus the costs of leaning against these risks too much.
The bank said it will monitor the situation very closely. "Whatever happens, we will make sure that inflation returns to the 2 percent target," it added. ■
