At its most recent meeting before the UK election on July 4, the Bank of England maintained its main interest rate at a 16-year high of 5.25 percent. However, the likelihood of a future rate cut increased as some policymakers expressed that their current thinking was now “finely balanced.”
In keeping with expectations from a Reuters poll of economists, the BoE’s Monetary Policy Committee voted 7–2 on Thursday to maintain the status quo for interest rates. Only one policymaker, Deputy Governor Dave Ramsden, and one external MPC member, Swati Dhingra, backed a reduction to five percent.
The official figures released on Wednesday indicated that inflation had returned to the target rate of two percent, which BoE Governor Andrew Bailey called “good news.” However, he cautioned against reducing rates just yet. “We have chosen to maintain rates at 5.25 percent for the time being because we need to be certain that inflation will remain low,” he stated.
Following the announcement, investors saw a greater likelihood of an early rate cut, which caused sterling to fall against the US dollar. British government bond yields also decreased. After the BoE’s next meeting on August 1, markets priced in a 55% chance of a rate cut, up from about 30% before Thursday’s announcement.
The European Central Bank’s controversial decision to begin lowering interest rates earlier this month and the Swiss National Bank’s second rate cut of 2024, which occurred earlier on Thursday, preceded the BoE vote.
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