The Bank of England has kept interest rates unchanged at 3.75%, citing concerns that reacting too quickly to inflation threats could create "undesirable volatility" in the economy. The decision was made by seven out of nine members of the monetary policy committee, with two voting for an immediate rise.

The move comes as the Iran conflict continues to weigh on the UK economy, but recent data suggests its impact may be less severe than initially feared. Inflation has been more muted than expected, at 2.8% last month, and oil prices have fallen in recent days following Donald Trump's pact with Iran.

Bank of England governor Andrew Bailey warned that higher energy prices remain a concern, saying "there's already some inflationary pressure in the pipeline". He added that the Bank would aim to ensure that inflation does not stay above its 2% target for too long. The minutes of the meeting reveal that the monetary policy committee remains concerned about the risk of higher energy prices feeding through into wider inflation.

Independent member Megan Greene and chief economist Huw Pill voted for a quarter-point rise, with Pill warning of the risk of "catch-up dynamics" as companies and workers bid up prices and wages in response to higher costs. The Bank's wait-and-see stance contrasts with that of the European Central Bank, which raised rates last week.

The decision has been welcomed by some analysts, who say it reflects a more nuanced understanding of the economy's current state. However, others have expressed concerns about the potential risks of keeping interest rates low for too long. The Bank now expects the impact of the conflict on UK inflation to be less dramatic than first thought, with the consumer prices index rising to about 3.25% in the fourth quarter of this year – lower than in any of three scenarios it laid out last month.

The Bank's governor explained that a rapid reaction to rising inflation carried a risk of "undesirable volatility", and suggested that the current weakness of the economy, including the jobs market, should help to contain the risk of inflation becoming entrenched. Oil prices have fallen in recent days, but they are still higher than before the war.

The Bank will continue to monitor the situation closely and is prepared to act if necessary to keep inflation on track to meet the 2% target in the medium term. The decision highlights the delicate balancing act faced by policymakers as they try to manage the economy's response to external shocks, such as the Iran conflict.