And yet, despite this clear and present inflationary danger, the MPC voted unanimously to stand pat. Why? Because the alternative—raising rates further—would be akin to applying leeches to a patient who is already suffering from severe anaemia. The UK economy is barely breathing. Growth forecasts have been slashed to the bone, with some analysts suggesting we are teetering on the edge of a technical recession. The manufacturing sector is in the doldrums, the construction industry is being propped up by infrastructure projects rather than housebuilding, and consumer confidence is as fragile as a politician’s promise. A rate hike in this environment would not just cool the economy; it would freeze it solid. It would push more small businesses into insolvency and tip a wave of over-leveraged mortgage holders into genuine distress.
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Andrew Bailey’s communication strategy has been a masterclass in cautious equivocation. He acknowledges the “inflation hump” caused by energy prices but insists that it is a temporary, supply-side shock that monetary policy is ill-equipped to address. Raising interest rates, he argues, cannot magic more oil out of the ground or calm geopolitical tensions. What it can do is crush domestic demand so thoroughly that the economy simply cannot afford to pay higher prices, a cure that is arguably worse than the disease. The market, for its part, remains sceptical. Traders are pricing in the possibility of hikes later in the year if the energy shock proves more persistent than the Bank hopes. It is a deeply uncertain environment. The Bank of England is effectively flying blind, hoping that the storm clouds over the Middle East clear before the frost sets in over the British high street. Holding at 3.75 percent is the only sensible, if uninspiring, option on the table. It is a policy of masterful inactivity, a bet that time and a fragile ceasefire will solve the problem before the Bank is forced to take action that would almost certainly push the economy off a cliff.
