LONDON -The Bank of England kept its main interest rate unchanged at a 16-year high of 5.25% on Thursday ahead of a July 4 election, but some policymakers said their decision not to cut rates was now "finely balanced".
Sterling fell against the U.S. dollar after the announcement and British government bond prices dropped as investors saw a greater chance of an early rate cut. Markets priced in an 88% chance of a first quarter-point cut by September's meeting, up from 74% before Thursday's decision. While Sunak has sought credit for the fall in inflation since he took office in October 2022, when it was at a 41-year high of 11.1%, Labour blames high mortgage rates on economic mismanagement by the Conservatives' previous leader, Liz Truss.The BoE expects inflation to rise above target as the effect of past energy price falls drops out of annual inflation data, and repeated its May forecast for inflation to be around 2.5% in the second half of 2024.
They viewed the higher-than-expected reading as reflecting a nearly 10% rise in Britain's minimum wage and annual indexed rises in prices that reflected past inflation - factors they did not expect to have as big an upward effect on future inflation. Before that, BoE Chief Economist Huw Pill described an excessive focus on a June rate cut as "ill advised" but both he and Deputy Governor Ben Broadbent - who steps down at the end of this month - said a rate cut over the summer was possible.
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