The Bank of England kept its main interest rate unchanged at a 16-year high of 5.25 per cent on Thursday ahead of a July 4 election, but some policy-makers said their decision not to cut rates was now “finely balanced.”
“We need to be sure that inflation will stay low and that’s why we’ve decided to hold rates at 5.25 per cent for now,” he said. Markets on Thursday viewed a BoE rate cut as unlikely before September or November, although a Reuters poll of economists published last week showed most expected a rate cut on Aug. 1 after the BoE’s next rate decision. Any cut is likely to be too late for Prime Minister Rishi Sunak, whose Conservative Party is around 20 points behind the opposition Labour Party in the pre-election polls.
The BoE said indicators of inflation persistence – chiefly wage growth and services inflation – had moderated since its May meeting but remained high. But for other MPC members, the high services price inflation and the fact that wage growth had been faster than standard economic models had predicted reinforced their view that it was too soon to cut rates.