General view of the Bank of England building in London.
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It keeps the central bank’s policy rate at a 16-year high of 5.25%, where it has been since August 2023.
Seven members of the Monetary Policy Committee voted in favor of maintaining it, while two members favored a 25 basis point cut, as at the May meeting.
In a statement, the MPC noted that inflation had reached the central bank’s target and that indicators of “short-term inflation expectations” and wage growth had declined.
It was “very difficult to measure the evolution of labor market activity” due to uncertainty surrounding estimates from the Office for National Statistics, the MPC added.
Repeating earlier reports where some analysts thought inflation could fall, it said again that monetary policy “must remain restrictive long enough to sustainably return inflation to the 2% target.”
Inflation data on Wednesday showed headline price increases cooled to 2% in May, hitting the target ahead of the US and eurozone, despite Britain having suffered sharper peak inflation over the past two years.
However, economists say persistently high service rates and core inflation in Britain indicate the potential for continued upward pressure.
The central bank’s decision to uphold this decision comes just two weeks after a general election in which the state of the economy and proposals to revive sluggish growth have emerged as a key battleground.
Despite speculation that the politically independent BOE could act more cautiously due to the upcoming election, Governor Andrew Bailey had emphasized that it would continue to focus on its own data.
Attention will now turn to the prospects of a rate cut in August. Money market prices indicated a nearly 50% chance after Thursday’s statement, higher than the day before.
The MPC said that among the seven members who voted in favor of retention, there was disagreement over the amount of evidence collected that would be needed to justify a cut, and that their decision was “balanced”.
Some felt that key indicators of inflation persistence remained “high”, with particular concerns about second-round effects from the services sector, strong domestic demand and wage growth. However, others felt that higher-than-expected inflation in the services sector in May had not had a significant impact on Britain’s overall disinflation trajectory.
Ruth Gregory, deputy chief U.K. economist at Capital Economics, said in a note that “several developments implied that a rate cut is getting closer,” including the “balanced” comment and the fact that the BOE’s overall tone has not become more hawkish since then . Be able to.
The likelihood of a rate cut in the summer is higher than the 30-40% previously priced by markets, said James Smith, developed markets economist at ING.
“I think the inflation numbers, the inflation in the services sector… I think the path for that is still not good, and I think it will be [the BoE] I remain pretty confident,” Smith told CNBC’s Silvia Amaro after Thursday’s announcement.
‘A bit like the [European Central Bank]“I think they’re more confident in their ability to predict inflation than they were maybe six to 12 months ago.”
Other central banks in Europe have already started easing monetary policy, including the European Central Bank, the Swiss National Bank and Sweden’s Riksbank, as they try to revive economic growth.
In fact, the US Federal Reserve, sometimes seen as the central bank leader due to the US’s outsized influence on the global economy, has left traders wondering when the first rate cut will come. According to LSEG data, money market prices indicate a 65% chance of a rate cut in September.
The British pound extended losses against the US dollar, trading 0.3% lower at $1.267 at 1pm in London.