The Bank of England will keep rates on hold, although inflation is likely to fall to target

The Bank of England will leave interest rates on hold for the seventh consecutive meeting when ratemakers meet on Thursday, meaning Bank Rate will remain at its highest level in 16 years.

The Monetary Policy Committee (MPC) left the door open for a June cut at its last meeting in May, but since then a number of data releases have pointed to stubborn inflationary pressures.

“The BoE has made it clear that the economic data will determine when it starts cutting Bank Rate,” said Ruth Gregory, deputy chief UK economist at Capital Economics. “And the tone of the incoming data since then has been disappointing.

April’s inflation release showed services inflation, which the bank said was a key gauge of domestic price pressures, fell much less than expected. Services inflation remains around six percent, more than double the level consistent with the two percent inflation target.

Similarly, the latest labor market data released last week showed it was 5.8 percent in the private sector.

These two measures are essential to understanding the underlying inflationary dynamics in the economy. With both measures coming in slightly ahead of expectations, policymakers are unlikely to be confident enough to cut interest rates this week.

Moreover, most economists think it highly unlikely that the Bank of England would be willing to start cutting interest rates in the middle of an election campaign.

Any decision to cut rates just weeks before election day could drag the bank into a political debate. MPC members have also had to cancel their public appearances during the election campaign, making it much more difficult for them to explain their policy-making approach.

All this leaves the bank in a holding position. Policymakers know the next step will be a rate cut, but they don’t know exactly when it will happen.

Most economists did not expect any further guidance beyond what was provided in May. Analysts at Barclays said there would be “little or no change” in MPC guidance this month.

Although interest rates will remain at 5.25 percent, some commentators still expect the bank to be able to cut them in August.

Much depends on the May inflation data, released just a day before the bank meeting. Economists generally expect the headline rate to return to two percent for the first time since July 2021. Inflation in services is also expected to fall to around 5.5 percent.

The European Central Bank (ECB) cut interest rates this month for the first time in five years, but the Fed decided to leave them on hold again, pointing to only “modest” progress in inflation.