Despite high inflation, the Bank of England chose to keep the benchmark interest rate unchanged and still revealed a clear "dovish" stance on both the voting breakdown and the contents of its meeting minutes.

by Xinhua writer Zhang Yadong

LONDON, June 22 (Xinhua) -- The Bank of England (BoE) announced on Thursday that it will keep its benchmark interest rate unchanged at 4.25 percent, a decision that was highly consistent with market expectations.

On one hand, inflation in Britain remains above the BoE's 2 percent target. According to data released by Britain's Office for National Statistics, the CPI for May was 3.4 percent. The BoE predicted that the CPI could rise further to 3.7 percent by September.

On the other hand, intensified regional conflicts -- including those involving Israel and Iran -- could disrupt global supply chains, potentially triggering upward pressure on British domestic inflation. Given these reasons, the BoE continues to adopt a cautious "wait and see" stance regarding its monetary policy.

However, what surprised the market was that despite high inflation, the bank chose to keep rates unchanged and still revealed a clear "dovish" stance on both the voting breakdown and the contents of its meeting minutes.

The vote was notably divided. Among the nine members of the Monetary Policy Committee, three voted to cut rates by 25 basis points, while six supported holding rates steady.

This suggests that calls for easing monetary policy are becoming more prominent within the BoE. Comparing this with the meeting in May reveals a shift: back then, two members supported a 50 basis point cut, two supported holding rates, and five voted for a 25 basis point cut.

In the meeting in early May, the CPI figures for April and May had not yet been released. But by the time of the meeting in June, the CPI for April (3.5 percent) and May (3.4 percent) were both known.

Despite these elevated inflation figures, three members still voted for a 25 basis point rate cut, further highlighting the bank's dovish tilt.

The dovish stance is even more evident in the meeting minutes. The BoE acknowledged that inflation risks remain, both domestically and internationally. However, it also emphasized Britain's weak economic growth and a softening labor market, suggesting that the inflationary pressures may not be sustainable.

Previous data showed that Britain's GDP shrank by 0.3 percent month-on-month in April. At the same time, the labor market continued to weaken. The unemployment rate in April rose to its highest level in nearly four years.

According to data released on June 10, the unemployment rate for February to April 2025 increased to 4.6 percent, higher than both a year ago and the previous quarter.

Although employee wages are still growing, the rate of increase has slowed due to weak hiring demand. From February to April, regular pay (excluding bonuses) rose by 5.2 percent year-on-year, and total pay (including bonuses) increased by 5.3 percent, both lower than market expectations.

Institutional analysts have also interpreted the BoE's tone as dovish. Anna Leach, chief economist at the Institute of Directors, noted that while the meeting minutes mention two-sided risks to inflation, the overall tone suggests waning concern about rising inflation.

The bank emphasized progress in bringing down inflation over the past two years and pointed to stabilizing inflation expectations.

Alpesh Paleja, deputy chief economist at the Confederation of British Industry, said that the BoE sees diminishing price pressures and increasing downside risks to inflation, particularly in the labor market. Given this dovish stance, markets widely expect at least two more rate cuts from the BoE in the second half of this year, potentially lowering the base rate to 3.75 percent by year-end.

Leach said that even though the bank maintains a "gradual and cautious" approach, a further 50 basis point cut this year seems likely. Paleja added that the pause on Thursday was just a "brief stop" in an ongoing rate-cutting cycle. He predicted that the BoE could cut rates three more times, bringing the base rate down to 3.5 percent by early next year.