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Alpesh Paleja, Deputy Chief Economist, CBI, responds to latest Bank of England decision on interest rates

“It is no surprise that the Bank of England has kept interest rates on hold, given expectations of a near-term rise in inflation. Prior to the escalation in the Middle East, the Monetary Policy Committee had been widely expected to cut rates further – but that now looks unlikely.

“That said, the MPC is navigating two-sided risks to inflation. Fuel prices and input costs have spiked, as reflected in our business surveys. Some measures of households’ inflation expectations have also moved higher, raising the risk of renewed knock-on effects on wage and price setting that could keep inflation above target for longer.

“However, this is not a repeat of the 2022–23 inflation shock. The labour market is now looser and there is greater slack in the economy, which should keep a lid on both wage growth and domestic price pressures – though the extent of that effect remains uncertain.

“Ultimately, different members of the MPC are placing varying weight on these competing forces. How they evolve in the months ahead – particularly alongside developments in the conflict – will be key in shaping the path for monetary policy. With uncertainty still high, the MPC is likely to remain on hold for some time yet.”