The Bank of England held Bank Rate at 3.75% at its April Monetary Policy Committee meeting, with policymakers voting 8-1 to keep the benchmark unchanged. Chief Economist Huw Pill was the sole dissenter, voting to raise Bank Rate by 25 basis points to 4.00%.
The Committee also flagged the risk of second-round effects from the recent Middle East energy shock, which have complicated its assessment of the near-term inflation outlook. The stock of UK government bonds held for monetary policy purposes remained at £525 billion, in line with the previously announced pace of balance sheet reduction.
INFLATION BACK ABOVE TARGET
The decision to hold came against a backdrop of CPI inflation having increased to 3.3% ahead of the meeting, well above the Bank's 2% target. Officials attributed part of the recent rise to higher global energy prices and to a range of domestic services components that have proved slower to normalise. The combination has forced the Committee to weigh continued restrictive policy against the risk of tipping activity into a deeper slowdown.
The MPC's minutes made clear that policymakers were watching closely for signs that the energy-driven inflation impulse could feed through into wages and pricing behaviour more broadly. The reference to second-round effects echoes language used by other major central banks reacting to the same shock, and marks a step change from the more benign language used in earlier communications.
The 3.3% CPI reading, sitting well above target, is likely to keep the Bank cautious about signalling any imminent easing. The Committee has previously said that persistent inflation surprises would need to be matched by evidence that services inflation and wage growth are cooling on a sustainable basis, and the recent data have raised doubts about that trajectory.
PILL'S HAWKISH DISSENT
Mr Pill's vote for a 25 basis point rise to 4.00% represents the first time a single MPC member has broken from a majority to call for higher rates since the current pause began. As Chief Economist, his dissent carries particular weight, given his responsibility for the Bank's staff analysis of the inflation outlook and his role in shaping the internal debate.
The remaining eight members voted to hold Bank Rate, taking the view that the current stance was sufficiently restrictive to bring inflation back to target over the forecast horizon, provided that second-round effects were contained. The absence of any dovish dissent points to a Committee that is now more concerned about inflation than about the downside risks to growth, even if the majority is not yet prepared to move.
The Committee left the stock of UK government bonds held for monetary policy purposes at £525 billion, in line with its previously announced pace of quantitative tightening. Officials have consistently said that Bank Rate remains the active tool of policy, with balance sheet reduction running in the background at a predictable pace. The MPC did not offer explicit forward guidance beyond reiterating its data-dependent approach, leaving investors to focus on subsequent inflation and wage data as they judge the probability of further hikes. The next inflation print and the following round of labour market data will be closely scrutinised for evidence on whether the risks flagged by Mr Pill are beginning to crystallise.