Skip to content
Search

Latest Stories

Bank of England holds rates at 5.25 per cent ahead of election

The Bank of England’s decision comes after the European Central Bank’s rate cut earlier this month and the Swiss National Bank’s second rate cut of 2024.

Bank of England holds rates at 5.25 per cent ahead of election

The Bank of England held its main interest rate at 5.25 per cent, a 16-year high, in its final meeting before the UK election on 4 July.

The decision, voted 7-2 by the Monetary Policy Committee, aligned with expectations from a Reuters poll of economists. Deputy governor Dave Ramsden and external MPC member Swati Dhingra were the only members supporting a cut to 5 per cent.


BoE governor Andrew Bailey noted the recent inflation figures, showing it back at the 2 per cent target, as "good news" but stated it was premature to reduce rates. "We need to be sure that inflation will stay low and that's why we've decided to hold rates at 5.25 per cent for now," he said. Previously, Bailey had expressed optimism about data moving towards a rate cut.

Following the announcement, sterling dropped against the US dollar, and British government bond yields decreased. Investors now see a higher likelihood of an early rate cut, with markets pricing in a 55 per cent chance for a cut on 1 August, up from 30 per cent before Thursday's decision.

The BoE's decision comes after the European Central Bank's rate cut earlier this month and the Swiss National Bank's second rate cut of 2024. The Federal Reserve is expected to begin lowering US rates in September, while economists predict the BoE might start earlier.

"We still expect the MPC to cut rates in August but this is not a done deal," said Alpesh Paleja, interim deputy chief economist at the Confederation of British Industry.

Any rate cut may not benefit prime minister Rishi Sunak, whose Conservative Party trails the opposition Labour Party by about 20 points in pre-election polls. Sunak, who took office in October 2022, has claimed credit for the fall in inflation, but Labour attributes high mortgage rates to economic mismanagement by former Conservative leader Liz Truss.

The BoE clarified that the upcoming election did not influence its decision.

The BoE anticipates inflation to rise above target as past energy price decreases phase out of the annual data, maintaining its May forecast of around 2.5 per cent inflation in the second half of 2024. The policy minutes highlighted that some MPC members found the decision to hold rates "finely balanced," indicating a potential rate cut.

Indicators of inflation persistence, such as wage growth and services inflation, have moderated but remain high since the May meeting. MPC members with a "finely balanced" view placed less emphasis on higher-than-expected May services inflation, attributing it to a nearly 10 per cent rise in Britain's minimum wage and annual indexed price increases from past inflation.

"The fact that the decision was described as 'finely balanced' for some of those voting to hold is a signal that an August rate cut is firmly in play," said Peter Arnold, chief economist at EY UK. However, other MPC members believe it is too soon to cut rates, citing high services price inflation and faster-than-expected wage growth.

Since the election campaign began, the BoE has been in a self-imposed period of silence, cancelling public events. Prior to this, BoE chief economist Huw Pill advised against an excessive focus on a June rate cut, while he and deputy governor Ben Broadbent, who steps down this month, acknowledged a possible rate cut over the summer.

The BoE started raising rates in December 2021, earlier than other major central banks, reaching the current peak in August 2023.

(Reuters)

More For You

UK economy contracts unexpectedly in January

Chancellor Rachel Reeves speaks while holding roundtable discussion during a visit to RAF Waddington in eastern England. (Photo by YUI MOK/POOL/AFP via Getty Images)

UK economy contracts unexpectedly in January

BRITAIN's economy unexpectedly shrank in January, official data showed on Friday (14), piling more pressure on the Labour government ahead of its Spring Statement on the economy.

Gross domestic product contracted 0.1 per cent in the month after GDP rose 0.4 per cent in December, the Office for National Statistics (ONS) said in a statement.

Keep ReadingShow less
Pakistan seeks £3.4bn bank loan to tackle mounting energy sector debt

Pakistan’s government is the largest shareholder or owner of most power companies

Pakistan seeks £3.4bn bank loan to tackle mounting energy sector debt

Eastern Eye

PAKISTAN government is negotiating a 1.25 trillion Pakistani rupee (£3.4 billion) loan with commercial banks to reduce its bulging energy sector debt, the power minister and banking association said.

Plugging unresolved debt across the sector is a top priority under an ongoing $7bn (£5.4bn) International Monetary Fund (IMF) bailout, which has helped Pakistan dig its way out of an economic crisis.

Keep ReadingShow less
Deliveroo posts first annual profit after 12 years

A Deliveroo rider near Victoria station in London, England. (Photo by Dan Kitwood/Getty Images)

Deliveroo posts first annual profit after 12 years

FOOD DELIVERY app Deliveroo announced on Thursday (13) its first annual profit as orders and revenue rose, while the 12-year old company sees further growth despite exiting Hong Kong.

The milestone follows sizeable full-year losses owing to high investment costs since American Will Shu founded the company in 2013 and made Deliveroo's first delivery in London.

Keep ReadingShow less
JLR-Tata-Getty

JLR had initially planned to manufacture more than 70,000 electric vehicles at the facility. (Photo: Getty Images)

JLR halts plan to build EVs at Tata’s India plant: Report

JAGUAR LAND ROVER (JLR) has put on hold plans to manufacture electric vehicles at Tata Motors’ upcoming £775 million factory in southern India, according to a news report.

The decision was influenced by challenges in balancing price and quality for locally sourced EV components, three of the sources said. They added that slowing demand for electric vehicles was also a factor.

Keep ReadingShow less