(CTN News) – The Bank of England on Thursday left its key interest rate at a 16-year high amid decreasing UK inflation, opting against a decrease before Britain’s general election next month.
While annual inflation dropped in May to a near three-year low of 2.0 per cent, matching the central bank’s objective, the Bank of England had been expected to retain the rate at 5.25 per cent ahead of the national vote on July 4.
“It’s good news that inflation has returned to […] target,” Bank of England governor Andrew Bailey said following the regular policy meeting.
“We need to be sure that inflation will stay low and that’s why we’ve decided to hold rates at 5.25pc for now.”
Inflation Hits Near Three-Year Low at 2.0%, Bank of England Holds Rates Steady
Analysts said there was a significant likelihood that the BoE would cut at its next meeting in August following a series of hikes that have helped bring down UK inflation from the highest level in more than four decades.
Prospects of a looming drop impacted on the British pound, although London’s top-tier FTSE 100 equities index climbed in early afternoon trading.
Shortly before the latest BoE statement, the Swiss National Bank published a second straight interest-rate decrease, after becoming March the first Western central bank to slash borrowing charges that had been imposed to tackle inflation. Norway froze rates Thursday.
Analysts had widely expected no adjustment to the BoE rate owing to UK services inflation being well above two per cent and with energy bills set to rise towards the end of the year.
Seven members of the bank’s Monetary Policy Committee (MPC) decided to hold the rate stable, while two requested a drop – the same outcome as the prior meeting in May.
The BoE stated that for several members who voted for no change this time around, the choice was “finely balanced”.
This indicated “that they could be swayed in August”, remarked Susannah Streeter, head of money and markets at Hargreaves Lansdown.
“Bets have increased now that a rate cut will come in August, but financial markets are still not fully pricing in a rate cut until September,” she added.
Analysts said that the UK central bank would have sought to avoid a decision Thursday that may have been regarded as taking sides during a high-profile election campaign.
However, the Bank of England underscored that its announcement was in no way influenced by politics.
According to the meeting minutes, the MPC did not consider the time of the general election while making its decision.
The Bank of England’s primary role is to keep the UK annual inflation rate near to 2 percent.