General view of the Bank Of England building in London.
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It keeps the central bank’s key rate at a 16-year high of 5.25%, where it will remain until August 2023.
Seven members of the Monetary Policy Committee voted to maintain, while two voted for a cut of 25 basis points, the same as at the May meeting.
In a statement, the MPC noted that inflation had reached the central bank’s target and said indicators of “short-term inflation expectations” and wage growth had eased.
It was “very difficult to gauge developments in labor market activity” due to uncertainty around the Office for National Statistics’ estimates, the MPC added.
Repeating an earlier message that some analysts thought it might fall, he again said that monetary policy must “remain tight for a long enough time to return inflation sustainably to the 2% target”.
Inflation data on Wednesday showed overall price growth cooled to 2% in May, hitting the target ahead of the US and eurozone, despite the UK suffering a sharper rise in inflation over the past two years.
However, economists say continued high levels of UK services and core inflation suggest the potential for continued pressure on growth.
The central bank’s decision to hold comes just two weeks after a general election in which the state of the economy and proposals to resume sluggish growth have emerged as key battlegrounds.
Despite speculation that the politically independent BOE might act more cautiously in the wake of the upcoming vote, Governor Andrew Bailey stressed that it would continue to focus on its own data.
Attention will now turn to the prospect of an August rate cut. Money market prices indicated a nearly 50% chance of that after Thursday’s announcement, up from the previous day.
The MPC said there was disagreement among the seven members who voted to hold over the level of accumulated evidence that would be needed to justify a cut, and that their decision was “finely balanced”.
Some believed that key indicators of the persistence of inflation “remained elevated”, with particular concern about the secondary effects of services, strong domestic demand and wage growth. However, others felt that May’s higher-than-expected services inflation did not have a significant impact on the UK’s overall disinflation trajectory.
Ruth Gregory, deputy chief UK economist at Capital Economics, said in a note that “several developments have indicated that a rate cut is imminent”, including the “finely balanced” commentary and the fact that the BOE’s overall tone has since become less hawkish . May.
According to James Smith, developed markets economist at ING, the chance of a summer rate cut is higher than the 30-40% that markets had previously valued.
“I think the inflation numbers, the services inflation… I think the path to that is still down and I think they will [the BoE] to remain reasonably confident,” Smith told CNBC’s Silvia Amaro after Thursday’s announcement.
“Kind of like [European Central Bank]I think they have more confidence in their ability to forecast inflation than maybe 6-12 months ago.”
Other central banks in Europe have already begun easing monetary policy, including the European Central Bank, the Swiss National Bank and Sweden’s Riksbank, in an effort to restart economic growth.
Likewise, the U.S. Federal Reserve, sometimes considered the leader of the central bank because of the U.S.’s huge influence on the global economy, left traders wondering when its first rate cut would come. Money market prices, according to LSEG data, indicate a 65% chance of a September decline.
The British pound extended losses against the US dollar and traded 0.3% lower at $1.267 at 1:00 pm in London.