The Bank of England keeps interest rates at 5.25% but a rate cut is imminent

The Bank of England has kept interest rates at 5.25% for the fifth time in a row, but said prospects for a rate cut are now “moving in the right direction.”

The nine-member rate-setting committee continues to collectively judge that it is too early to consider cutting rates despite further progress in taming the economy. inflation revealed earlier this week.

However, two members who had previously voted for a rate hike backed away from that view.

This means eight out of nine members supported no changes, while another member, Swati Dhingra, supported a reduction to 5% for the second consecutive meeting.

Latest finance: Reaction to Bank of England interest rate decision

However, the minutes of the meeting clearly stated that bank There are still concerns about the outlook for inflation.

“We’re not at the point where we can cut interest rates yet, but things are moving in the right direction,” Governor Andrew Bailey said.

Although the economy’s price growth has slowed sharply from the 11% it recorded at the height of the energy-driven cost-of-living crisis, overall growth of 3.4% remains well above the central bank’s 2% target.

The Committee is particularly concerned that Strong wage growth – Inflation rates well above 6% – will stimulate demand in the economy and create further inflationary pressures.

While inflation is expected to fall below target in April, largely due to slumping energy bills and the latest fuel tax freeze, the central bank predicts the number will climb again.

As global oil costs rise, rate setters want more vision for the future. Other concerns include rising prices linked to disruptions to shipping in the vital Suez Canal.

Financial markets had expected the Bank of England to cut interest rates in June ahead of the meeting, and that view persisted after Thursday’s vote.

Ahead of the rate decision, economists believe August is most likely.

The prospect of a rate cut is welcome for the economy as a whole, after 14 consecutive interest rate hikes – the central bank’s antidote to curb inflation – dealt a heavy blow to the economy.

Raising interest rates is a blunt tool designed to help ease prices by suppressing economic activity.

The country entered recession in the second half of 2023 as rising borrowing costs exacerbated the squeeze on household and business budgets.

The UK is expected to emerge from recession in the first quarter of this year – partly due to hopes that a rate cut is imminent.

For example, mortgage rates are down from late 2023, while spending has picked up.

Central banks are keen to avoid a recovery in economic growth if inflation remains high.

A nearly 10% rise in the national living wage next month is one of the challenges it faces. Private sector wage settlements have recently averaged around 5%.