Bank of England holds interest rates at 4.25% amid Middle East tensions and rising food prices
19 June 2025, 12:02 | Updated: 19 June 2025, 12:36
The Bank of England has held interest rates at 4.25%.
Listen to this article
Loading audio...
It comes after inflation fell slightly yesterday, despite a rise in food prices.
Six rate setters voted on Thursday to keep rates the same, while three others wanted to cut it by 0.25 points to 4%.
The BoE was under pressure not to cut rates amid tensions in the Middle East and rising food prices.
Bank governor Andrew Bailey said: “Interest rates remain on a gradual downward path, although we’ve left them on hold today.
“The world is highly unpredictable.”
He added that there were “signs of softening in the labour market” – referring to indicators including slower hiring and wage growth easing – which were being closely watched to see how far they feed into UK inflation.
The BoE last cut interest rates in May, the fourth reduction since 2020
“The Bank of England opens the door for a cut in August as it keeps one eye on energy prices” says Yael Selfin, Chief Economist at KPMG UK.
"The Bank of England opted to keep interest rates unchanged as the backdrop of elevated domestic price pressures was enough to prevent a majority of the MPC voting for a cut. The recent rally in energy prices driven by an escalation in geopolitical tensions in the Middle East have also added a further upside risk to the inflation outlook."
The committee said it was alert to concerns about conflict in the Middle East, which has escalated in recent days with attacks between Israel and Iran.
In the minutes of the MPC’s meeting, it noted that there had been “rapid geopolitical developments”, adding: “Energy prices had risen owing to an escalation of the conflict in the Middle East.
“The committee would remain vigilant about these developments and their potential impact on the UK economy.”
It echoes similar remarks made by the US’s central bank which also opted to keep interest rates on hold on Wednesday.
Global oil and natural gas prices have surged in recent weeks, which threatens to push up energy costs in the UK.
Furthermore, the MPC noted that Donald Trump’s tariff policy was posing risks to global trade and continuing to create uncertainty.
But it said that deals struck between the US and other countries, including the UK, meant that the direct impact of the “trade shock” on global growth could be smaller than it had forecast last month.
It comes after the rate of Consumer Prices Index inflation fell to 3.4% in May from 3.5% in April.
Most economists were expecting the CPI rate to come in at 3.3% for May as price rises cooled following a raft of bill increases the previous month, that pushed inflation to the highest level in more than a year.
The ONS said that food and non-alcoholic drink prices rose by 4.4% in the year to May – the highest level in more than a year.
Cupboard items like sugar, jam and chocolate as well as ice cream saw the biggest monthly price hikes, while meat costs also rose.
