The Bank of England (BoE) has announced that interest rates will be held at 3.75%, the lowest bank base rate (BBR) since February 2023.

The central bank's latest decision, which had been widely anticipated by economists, comes after inflation remained unchanged at 2.8% in May.

The Monetary Policy Committee (MPC) voted by a majority of seven to two to maintain the BBR at 3.75%. The members who voted against holding favoured raising the rate to 4%.

In its report, the MPC said that while global energy prices have fallen since the last meeting in April following developments in the Middle East, they remain higher than pre-conflict and have "continued to be volatile".

It added that the impact of the energy shock on the UK economy remains uncertain and that while monetary policy cannot influence energy prices, it is being set to ensure any adjustment occurs in a way that achieves the 2% inflation target.

Furthermore, the MPC expects inflation to rise later this year and has therefore judged it appropriate to maintain the BBR at 3.75%.

Co-chief investment officer and partner at Saltus, Charlie Ambler, said the decision "reflects the difficult balancing act" being faced by the BoE.

He added: "The MPC faces a genuine dilemma, with inflation remaining elevated and second-round effects from energy shocks becoming a real concern. The combination justifies the hawkish language and dissent for a hike that emerged in April. Yet growth is weakening, unemployment is drifting higher, and the labour market is softening, so today’s decision to hold reflects the right balance at this point in time, given this uncertainty."

Also commenting on the bank's move, Lindsay James, investment strategist at Quilter, said: “As was well telegraphed, the BoE has kept interest rates at 3.75%, with markets more concerned about whether hikes are still likely this year or if the narrative can shift back to cuts. Clearly the memorandum of understanding between the US and Iran has changed the landscape somewhat, but the benefits of this and a return to normality still seem a long way off.

“Whilst inflation was below expectations in May and currently under 3%, it is still likely to jump closer to 4% later in the year due to the coming impact a higher energy price cap. Furthermore, despite recent falls in the oil price, it remains higher than it was last year and the BoE will feel nervous about cutting rates in that scenario even with a stuttering labour market and uninspired growth.

"Furthermore, members acknowledged that a weaker labour market reduced the chances of the recent bout of inflation leading to higher wage demands, some felt that households are more aware than ever of how one has led to the other in recent years - a case of once burnt, twice shy."

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