The Bank of England has signalled that a weakening labour market could yet trump rising global challenges to allow for more interest rate cuts in the near term.
Policymakers on the nine-member monetary policy committee (MPC) voted 7-3 to maintain Bank rate at 4.25%.
There was greater support than was expected for a cut.
The Bank had previously signalled that a majority on the committee were cautious about the effects of global instability – especially the on-off US trade war.
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But the minutes of the Bank’s meeting showed there was a greater focus on a rising jobless rate and evidence that employers are shedding jobs – indicating it had dominated the meeting.
It acknowledged, however, that there were potential challenges from the on-off US trade war and as a result of the Israel-Iran conflict.
The barrage of warheads has already resulted in double-digit percentage spikes to oil and natural gas prices in the space of a week.
“Interest rates remain on a gradual downward path,” governor Andrew Bailey said while adding that there was no pre-set path.
“The world is highly unpredictable. In the UK we are seeing signs of softening in the labour market. We will be looking carefully at the extent to which those signs feed through to consumer price inflation,” he added.
The Bank maintained its core message that it would take a “gradual” and “careful” approach.
“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,” the Bank said.
The rise in the UK’s jobless rate, along with recent data on payrolled employment, has been linked to a business backlash against budget measures, which kicked in in April, that saw employer national insurance contributions and minimum pay demands rise.
While a weaker labour market, including a fall in vacancies, could allow room for the Bank to react through further interest rate cuts, the spectre of war in the Middle East is now clouding its rate judgements.
The last thing borrowers need is an inflation spike.
The UK’s core measure of inflation peaked above 11% in the wake of Russa’s invasion of Ukraine – giving birth to what became known as the cost of living crisis.
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Businesses facing fresh energy cost threat
Inflation across the economy was driven by unprecedented spikes in natural gas costs, which pushed up not only household energy bills to record levels but those for businesses too – with the cost of goods and services reflecting those extra costs.
Borrowing costs have eased, through interest rate cuts, as the pace of price growth has come down.
The rate of inflation currently stands at 3.4% but was already forecast to rise in the second half of the year before the aerial bombardments between Israel and Iran had begun.
LSEG data shortly after the Bank of England minutes were published showed that financial markets were expecting a quarter point cut at the Bank’s next meeting in August and at least one more by the year’s end.
Read more:
Why Middle East conflict poses new cost of living threat
Commenting on the Bank’s remarks Nicholas Hyett, investment manager at Wealth Club, said: “Conflict in the Middle East risks higher energy prices potentially pushing inflation higher – though calling the course of events there is almost certainly a mugs game, and the Bank has said that under current conditions it expects inflation to remain broadly at current levels for the rest of the year.
“The risk is that all the uncertainty leaves the Bank paralysed, with rates stuck at their current level,” he concluded.
A crash between two oil tankers on a major shipping route near the UAE was likely caused by a navigational misjudgement by one of the vessels, officials have said.
The Adalynn and Front Eagle tankers collided and caught on fire on Tuesday near the Strait of Hormuz, a narrow channel which connects the Persian Gulf to the Gulf of Oman.
Israel-Iran latest: Tehran warns US against intervention
In a statement issued today, the United Arab Emirates’ energy ministry did not draw any link between the crash and an upsurge in electronic interference amid the Israel-Iran conflict.
Interference has disrupted navigation systems near the strait since the two countries began firing missiles at each other last week.
The multinational US-led Combined Maritime Force’s Joint Maritime Information Centre said in an advisory this week that it had received reports of interference stemming from near Iran’s Port of Bandar Abbas and other areas in the Gulf region.
Tehran has not commented on the collision or reports of interference.
The UAE coastguard said it evacuated 24 people from the Adalynn, while personnel on Front Eagle were reported safe with no pollution visible after a fire on its deck.
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The Strait of Hormuz – which handles around a fifth of the world’s seaborne oil – links the Gulf to the northwest with the Gulf of Oman, the Arabian Sea beyond.
The Adalynn, owned by a company based in India, had no cargo and was sailing towards the Suez Canal in Egypt, according to monitoring service TankerTrackers.com.
The Front Eagle was on its way to Zhoushan in China – and loaded with two million barrels of Iraqi crude oil, the tracker said.
TankerTrackers.com said on X that the Front Eagle was moving southbound at a speed of 13.1 knots when it “executed a starboard [right] turn, resulting in a collision” with the Adalynn.
The exact cause of the collision, which resulted in no injuries or spills, is still unclear.
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