Bank of England sits tight and leaves rates unchanged

(Alliance News) - The Bank of England on Thursday maintained interest rates at a 16-year high, although some officials felt the decision was "finely balanced," hinting at cuts to come.

At its June meeting, the BoE's Monetary Policy Committee voted 7-2 to keep bank rate at 5.25% for the seventh-successive meeting.

Seven members of the MPC, Andrew Bailey, Sarah Breeden, Ben Broadbent, Megan Greene, Jonathan Haskel, Catherine Mann and Huw Pill voted to leave rates unchanged. Two members Swati Dhingra and Dave Ramsden preferred to reduce bank rate by 0.25 percentage points, to 5%.

In a statement, the BoE said the restrictive stance of monetary policy is "weighing" on activity in the real economy, leading to a looser labour market and is bearing down on inflationary pressures.

The BoE said: "Indicators of short-term inflation expectations have also continued to moderate, particularly for households. CPI inflation is expected to rise slightly in the second half of this year, as declines in energy prices last year fall out of the annual comparison."

"Key indicators of inflation persistence have continued to moderate, although they remain elevated," the BoE added.

The BoE said monetary policy will need to remain restrictive for "sufficiently long" to return inflation to the 2% target sustainably in the medium term.

"The Committee has judged since last autumn that monetary policy needs to be restrictive for an extended period of time until the risk of inflation becoming embedded above the 2% target dissipates," it added.

The MPC noted that the timing of the general election on July 4 was not relevant to its decision at this meeting.

Referring to the fall in inflation to 2%, the MPC said for some members this was welcome but not necessarily indicative of the required sustained return to target.

For others, the policy decision at this meeting was "finely balanced".

At its May meeting, the BoE's Monetary Policy Committee also voted by a majority of 7–2 to maintain bank rate at 5.25%.

Unlike the upcoming meeting in August, Thursday's decision will not be accompanied by a monetary policy report with economic projections, nor a press conference with Governor Andrew Bailey.

The pound fetched USD1.2693 after trading at USD1.2706 shortly before the decision. The FTSE 100 was 32 points higher after being up 9 points ahead of the call.

Hope that June's meeting could see a cut in rates were dashed by strong services inflation readings in April and May, and the surprise calling of a general election by Prime Minister Rishi Sunak.

On Wednesday, inflation returned to target for the first time since July 2021, numbers showed.

According to the Office for National Statistics, the rate of yearly consumer price growth faded to 2.0% in May, from 2.3% in April. The reading was in-line with the FXStreet cited consensus.

The rate of inflation stood as high as 11.1% in October 2022, but has faded, albeit in a bumpily, since then.

On a monthly basis, consumer prices grew 0.3% in May, as they did in April from March. They had been expected to rise 0.4% last month, however, so the latest reading fell short of the FXStreet cited consensus.

The yearly core inflation rate, which strips out energy, food, alcohol and tobacco, faded to 3.5% last month from 3.9% in April, as expected.

The numbers from the ONS showed annual services inflation, a gauge on which the BoE has been keeping a close eye, cooled to 5.7% from 5.9%.

Wednesday's more favourable inflation reading followed a hotter-than-expected one in May, which showed consumer prices rose at an annual pace of 2.3% in April. Though easing from 3.2% in March, a slower rise of 2.1% was expected, according to economists.

By Jeremy Cutler, Alliance News reporter

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