Bank of England on Thursday kept interest rates unchanged at 5.25%. This is the seventh consecutive meeting at which the central bank has held interest rates steady.
In a statement, BoE stated:
At this meeting, the Committee voted to maintain Bank Rate at 5.25%. Headline CPI inflation has fallen back to the 2% target. The restrictive stance of monetary policy is weighing on activity in the real economy, is leading to a looser labour market and is bearing down on inflationary pressures. Key indicators of inflation persistence have continued to moderate, although they remain elevated. Monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term in line with the MPC’s remit.
Meeting market expectations
Prior to the announcement, analysts were expecting the BoE to hold interest rates steady again at 5.25%, meaning no surprises for the market upon the announcement.
In fact, analysts were anticipating a grand total of 7 MPC members would vote for interest rates to remain unchanged in the UK, versus just 2 voting for a rate cut. It was predicted that no MPC members would vote for a rate hike.
“The expectation was that the Bank will keep its key rate unchanged, despite yesterday’s inflation report where Headline CPI fell back to the 2% target rate for the first time in nearly three years,” David Morrison, analyst at Fineqia, explains:
Any expectation that the BoE would use this to justify a cut was ruled out due to the complication of the General Election in just two weeks’ time. Instead, the Bank may wait until August, although it could easily delay until later in the year, due to the stickiness of Services inflation, as well as Core CPI, which currently stands at 3.5%.
England ready for a rate cut
Out recently on June 14th, the Bank of England also published an ‘Ipsos Inflation Attitudes’ survey.
As part of the survey, respondents were asked ‘what would be best for the economy – higher interest rates, lower rates or no change?’
A 42% majority said that interest rates should go down, while 24% said they should remain unchanged. A mere 10% thought rates should go up.
When asked about the future path of interest rates, 34% of the survey respondents expected rates to rise over the next 12 months, down from 36% in February 2024.
A mere 25% said they expected rates to stay about the same over the next twelve months, down from 26% in February 2024.
Tellingly, the BoE did not mention how many respondents expected interest rates to fall over the next year.
On Wednesday, Office of National Statistics announced UK inflation reached its target of 2% in May, sparking afresh the debate that it was time for rate cuts.
This article first appeared on Invezz.com
