Bank of England holds interest rates despite Iran war inflation threat - as it happened

The Bank of England held bank rate steady at 3.75% on Thursday, but three of its nine rate-setting members said it should have tightened monetary policy to combat inflation from the Iran war.

Yet despite what some economists described as a “hawkish hold”, market-implied probabilities suggest the chances of a rate hike at the next meeting in September have gone down. The implied probability of no change in September rose from 53.6% just before the meeting to 73% by mid-afternoon.

Governor Andrew Bailey repeatedly told reporters at a press conference in London that the Bank was not preparing investors for a rate hike in the future, and that he was fairly comfortable that there was little evidence of inflationary pressures from oil prices feeding through to other goods and services in the economy.

The conflict started by the US and Israel hangs over every economic question at the moment. Iran shut the strait of Hormuz in response to the bombing campaign, shutting in millions of barrels a day of oil production. Central bankers are trying to wrestle with what that means for inflation across the world.

Catherine Mann , one of the independent members of the Bank of England’s monetary policy committee, joined her colleagues, Huw Pill and Megan Greene, in voting for a rate hike today. Mann said the collapse of a temporary truce between the US and Iran probably meant higher prices were unavoidable, so higher rates were needed to counter that.

Bailey characterised the disagreement as a reasonable divergence of judgments, but said the majority on the committee thought that evidence of second-order effects was lacking – even if inflation will rise later in the year because of higher oil prices.

US GDP grew by 1.5% annualised , slower than expected

US borrowing costs rose to their highest since the global financial crisis

Lloyds Banking Group will cu t another £2bn of costs as part of a four-year plan under which its chief executive will use new tech and AI to drive growth.

Eurozone GDP grew faster than expected in the second quarter despite concerns over the Iran war.

London’s FTSE 100 rose to a new high as mining companies and Rolls-Royce gained ground.

Shell doubled its profits in the second quarter thanks to the Iran war oil price jump

BAE Systems and Rolls-Royce upgraded profits as defence spending surges

Airbus was fined £6.4m in the UK after the European aerospace company admitted to breaches of rules designed to stop sensitive goods such as military hardware falling into the wrong hands.

Laptops, mobile phones and documents have been seized after officials carried out search warrants in a crackdown on claims companies plaguing people with spam text messages about the car finance mis-selling scandal.

Thanks for reading today, and please do join me tomorrow for more business, economics and financial markets. JJ