Bank of England keeps interest rate unchanged as inflation stays high

Bank of England

The Bank of England kept its key interest rate at 4.25 percent on Thursday as UK inflation remains elevated and risks climb owing to US tariffs and the Israel-Iran conflict.

The central bank's decision, widely expected by analysts, came one day after the US Federal Reserve maintained its benchmark borrowing costs unchanged, citing concerns over high inflation and slowing growth in the world's biggest economy.

Bank of England (BoE) governor Andrew Bailey hinted at cuts later this year, however, as the UK economy experiences sluggish growth.

"Interest rates remain on a gradual downward path, although we've left them on hold today," Bailey said, adding that "the world is highly unpredictable".

Official data Wednesday showed UK annual inflation dipped less than expected in May, to 3.4 percent, which leaves it well above the BoE's two-percent target.

In a statement, the central bank noted a recent surge in energy prices owing to "escalation of the conflict in the Middle East".

Nevertheless, analysts expect the BoE to reduce the rate at its next monetary policy meeting.

"The Bank of England opens the door for a cut in August as it keeps one eye on energy prices," said Yael  Selfin, chief economist at KPMG UK.

The Bank of Japan also kept interest rates unchanged this week.

But earlier Thursday, Norway's central bank made a surprise cut and the Swiss National Bank trimmed rates to zero percent, with both highlighting an uncertain economic outlook.

The BoE last month cut borrowing costs by a quarter point as tariffs began showing signs of weighing on growth.

Britain's economy shrank more than expected in April, owing also to a tax hike on UK businesses.