Bank of England Shadow MPC Urges Rate Hold Amid Middle East Tensions

The Times shadow monetary policy committee has strongly advised the Bank of England to maintain current interest rates, citing ongoing concerns about inflationary pressures stemming from the Israel-Iran conflict. The committee’s recommendation comes ahead of Thursday’s crucial meeting, where rates are expected to remain at 4.25 per cent.

Eight of the nine shadow MPC panellists advocated for maintaining the status quo, with a single member proposing a 0.25 percentage point reduction to 4 per cent. The cautious stance reflects growing uncertainties surrounding oil price volatility triggered by escalating Middle Eastern tensions.

Charles Goodhart, emeritus professor at the London School of Economics, emphasised the timing, stating: “It is far too early to have any clear idea about the likely implications of the Middle East hostilities on oil prices, though the general implication is that this is likely to be more inflationary.”

Recent economic indicators have shown mixed signals. Inflation rose to 3.5 per cent in April, marking the highest rate since January last year, while services inflation climbed to 5.4 per cent. The labour market has displayed signs of cooling, with payrolled employment falling by 109,000 in May, representing the most significant drop in five years.

Financial markets anticipate the Bank’s rate-setting committee will mirror the shadow MPC’s positioning, with predictions of a 7-2 vote split favouring no change. External MPC members Swati Dhingra and Alan Taylor are expected to advocate for a reduction.

The economic landscape remains complex, with the UK economy contracting by 0.3 per cent in April, coinciding with the implementation of a £25 billion rise in employers’ national insurance contributions and a 6.7 per cent increase in the minimum wage. These factors, combined with ongoing geopolitical tensions, reinforce the cautious approach to monetary policy.