BoE keeps rates at 5.25% in 'finely balanced' decision
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The news: The Bank of England (BoE) kept its key interest rate at a 16-year high of 5.25% for the seventh consecutive meeting on Thursday, but some of the nine members on its Monetary Policy Committee said the decision was now “finely balanced”.
The numbers: Two members, Swati Dhingra and Dave Ramsden, again voted for a 0.25 percentage point cut to a less restrictive 5%. The prevalent view, however, remained that the central bank needs to ensure inflation remains near its 2% target “sustainably in the medium term” before lowering rates.
The context: While inflation in the UK fell to its 2% target in May, primarily due to declining energy and food prices, the BoE remains cautious about future inflation driven by rising service costs and wages.
The central bank expects inflation to fall to its target by the end of next year but is waiting for more evidence before cutting rates.
Bond traders took the minutes from the decision as a sign the BoE is increasingly willing to cut in the coming months, pricing in a higher than 50% chance of a reduction in August, up from 32% before the meeting, according to Bloomberg.
A potential rate cut later this year will arrive too late for Prime Minister Rishi Sunak, as his Conservative Party, significantly trailing the opposition Labour Party in pre-election polls, faces the electorate on 4 July.
What they said: BoE Governor Andrew Bailey said it was “good news” that inflation had fallen back to its 2% target for the first time in almost three years, but that it was too soon to cut rates.
"We need to be sure that inflation will stay low and that's why we've decided to hold rates at 5.25% for now," he said.
The sources: Bank of England release, Bloomberg
