MUFG Research reviews today's June BoE meeting.

"Macro view: The BoE left rates unchanged at 3.75%, as expected, with a 7-2 vote split and no change to the core guidance. The tone of the statement and messaging reinforced a clear ‘wait and see’ stance. Since the last meeting, softer UK data and the retracement in energy pricing after the US-Iran deal have reduced the urgency for action. The majority of officials are still comfortable that tighter financial conditions will sufficiently counter energy-driven inflation risks. It now seems that the hawks have lost the argument for a proactive, ECB-style hike and we ultimately believe that second-round risks will remain contained given the extent of UK labour market slack. We are therefore dropping our call for tightening this year with the BoE set for a prolonged hold before resuming gradual easing in 2027," MUFG notes.

"Markets view: UK yields and the GBP have continued to correct lower after today’s MPC meeting. The recent US-Iran deal and softer UK economic data have helped to ease pressure on the BoE to raise rates in response to the energy price shock. The BoE indicated today that they were not in a hurry to tighten policy and wanted time to assess the fallout for the UK economy. We have dropped our own forecast for two BoE hikes this year. It leaves room for the UK yields and the GBP to continuing moving lower as BoE rate hike expectations are scaled back especially against the USD after the Fed opened the door for hikes overnight. UK political uncertainty could add to downside risks for the GBP and gilts after today’s Makerfield by-election," MUFG adds.