While markets had anticipated a move to curb rising prices, the committee delivered a split 8-1 verdict to hold, with only chief economist Huw Pill voting for an increase to 4%.

The decision follows a shift in the economic landscape caused by the effective closure of the Strait of Hormuz, which has driven global oil prices above $100 a barrel and pushed UK inflation to 3.3%. This geopolitical volatility has disrupted the Bank’s previous easing cycle, which saw six rate cuts since mid-2024. Evidence of mounting pressure is also visible in the services sector, which recently recorded its sharpest jump in operating costs since 1996.

Luke Bartholomew, deputy chief economist at Aberdeen, notes that while the hold was expected, the focus has shifted to how the bank communicates its future “reaction function”. He suggests that while recessionary risks may naturally limit secondary inflationary effects, a continued rise in oil prices may leave the bank with no choice but to implement hikes later this year.

He said: “This time the Bank has leaned heavily on its scenarios approach to describing the outlook and risks which should help to clarify the reaction function, and the data policymakers will be watching to decide how to set policy.”

For the Labour government, the pause provides a timely reprieve ahead of next week’s local elections. Chancellor Rachel Reeves has previously highlighted falling rates as a vital tool for easing the cost-of-living crisis, supported by recent budgetary measures such as utility bill cuts and rail-fare freezes designed to dampen inflationary effects.

Kevin Brown

Kevin Brown, savings specialist at Scottish Friendly, warned that the bank is now operating on a “knife-edge”. He said the MPC is betting that the current energy shock will be transitory rather than a repeat of the persistent price spiral seen in 2022.

Mr Brown continued: “Whether that’s the case or not remains to be seen. But regardless, many households are already struggling.

“Scottish Friendly’s Family Finance Tracker research found 55% of people say prices are still noticeably rising every time they shop, highlighting just how persistent cost pressures remain for many.

“The bank is operating on a knife-edge. Hold rates for too long and the risk is that inflation runs away like it did following the pandemic. But move too soon and rate-setters risk squeezing family finances in an already stuttering economy.

“For households, while savings rates remain relatively attractive for now, rising inflation means the real value of cash savings can still be eroded. Therefore, strengthening financial resilience by reducing debt, building savings or considering longer-term investments, could be considered viable options.”