The Bank of England has kept interest rates at 5.25 per cent today, dashing homeowners’ and Rishi Sunak’s hopes of a useful cut before the election.
The bank’s Monetary Policy Committee (MPC) voted 7-2 to keep the rate steady, meaning there will be no rate reduction before August at the earliest.
Most economists expected authorities to maintain rates a day after official figures showed inflation returned to the 2 percent target last month, for the first time since July 2021.
Rishi Sunak declared that “we’ve done it” after the milestone was confirmed, insisting it shows the economy has “turned the corner” after a long period of above-target inflation.
It raised questions about whether interest rates, which the central bank uses as a tool to control inflation, could now be reduced.
But experts warned that a rate cut this summer could be less likely until the majority of the MPC is confident inflation is under control.
Chancellor Jeremy Hunt said on Wednesday he hoped mortgage costs would begin to fall soon.
Bank Governor Andrew Bailey said policymakers “must be confident that inflation will remain low and that is why we have decided to keep rates at 5.25 per cent for
Bank Governor Andrew Bailey said policymakers “need to be confident that inflation will remain low and that is why we have decided to keep rates at 5.25 percent for now.”
The decision comes a day after official figures showed the inflation rate hit the Bank’s 2 percent target in May for the first time in almost three years, prompting the Prime Minister to declare “we’re there” after reach the milestone.
However, some officials on the Bank’s nine-person Monetary Policy Committee (MPC) felt that “more evidence of declining inflation persistence was needed” before rates could be safely cut.
In particular, they considered that services inflation – which only takes into account prices related to services such as hospitality and culture – had remained persistent and that wage growth was rising faster than expected.
But two committee members, Swati Dhingra and Dave Ramsden, voted again in favor of a reduction, arguing that inflation looks set to remain at normal levels.
Furthermore, a summary of the MPC meeting revealed that, for other members, the policy decision was “finely balanced” because they felt that services inflation was putting less pressure on the headline rate.
It indicates that policymakers were somewhat divided on the economic data.
“As part of the August forecasting round, committee members will consider all available information and how this affects the assessment that risks of persistent inflation are declining,” the MPC summary reads.
Meanwhile, the latest decision comes two weeks before the UK holds its general election, but policymakers stressed that the timing of the election was “not relevant to their decision” on rates.
Chancellor Jeremy Hunt said on Wednesday he hoped mortgage costs would begin to fall soon.
He told the Times CEO Summit this morning that he did not believe there had been “sustained economic scars” from Liz Truss’ 2022 mini-Budget.
Hunt was appointed Chancellor by then-Prime Minister Truss following the sacking of Kwasi Kwarteng in the wake of the mini-Budget which shocked the UK economy.
The Chancellor, who described his first week at the Treasury as the “most dramatic” of his life, said it is not “fair” to claim there are “sustained economic scars” from Ms Truss’ time in No 10.
He said: “It was one of the most dramatic weeks of my life in terms of decisions I had to make when I got that quite unexpected call from Liz Truss asking me to be Chancellor.”
“Which I thought was a hoax and I refused to take the call and I couldn’t imagine any situation where Liz Truss would actually ask me to be chancellor, so it was a bit surreal, and then in that first week, literally, I’m choosing the whole mini budget.
‘But I don’t think it’s fair to say that it left a sustained economic scar. “I think if we look at ourselves now with lower inflation and higher growth than most major economies, we are actually doing very well.”
Liberal Democrat Treasury spokeswoman Sarah Olney said: “Today’s decision means there is no end in sight to mortgage misery, with families hit by ballooning payments after the Conservatives ruined the British economy.”
‘Families have once again seen their hopes for a rate cut dashed, leaving them with unbearable mortgage payments for months to come.