The Bank of England kept its main interest rate steady at 5.25%, despite inflation falling to the 2% target in May. This decision comes as central banks worldwide grapple with the timing and extent of interest rate cuts amid easing inflation pressures.
Key points from the Bank of England’s decision:
- Interest rates remain at a 16-year high of 5.25%
- The vote was 7-2 in favor of keeping rates unchanged
- Two members voted for a 0.25 percentage point rate cut
Rationale behind the decision:
- Ensuring sustainable inflation control: The Bank wants to be certain that inflation will stay low before considering rate cuts.
- Persistent inflationary pressures: Services inflation remains high at 5.7%, exceeding the Bank’s forecast of 5.3%.
- Wage growth concerns: Signs indicate that wage growth may not ease as much as previously anticipated.
Governor Andrew Bailey stated: “It’s good news that inflation has returned to our 2% target. We need to be sure that inflation will stay low and that’s why we’ve decided to hold rates at 5.25% for now.”
The Bank of England’s stance aligns with other major central banks:
| Central Bank | Recent Action |
|---|---|
| European Central Bank | Cut rates for the first time in ~5 years |
| U.S. Federal Reserve | Indicated only one rate cut likely this year |
| Bank of England | Held rates steady at 5.25% |
Looking ahead:
- The Bank’s next policy meeting is in early August
- Some economists predict a potential rate cut in August, barring any surprises in the July inflation report
- The upcoming UK general election in early July may have influenced the timing of potential rate cuts
The Bank of England remains cautious, balancing the need to control inflation with supporting economic growth. While the door to rate cuts remains open, the central bank is prioritizing sustainable achievement of its 2% inflation target before making any moves to ease monetary policy.
