Bank Of England Holds Rate At 16-Year High Despite Slowing Inflation

(RTTNews) - The Bank of England retained its key policy rate on Thursday at a 16-year high despite inflation easing to the 2 percent target as policymakers are still concerned about services inflation and wage growth.

The Monetary Policy Committee, led by Governor Andrew Bailey, decided to hold the bank rate at 5.25 percent again in a split vote. The current bank rate is the highest since early 2008.

The rate has been kept unchanged for the seventh straight session. Governor Bailey, outgoing member MPC Ben Broadbent and five other members voted to keep the rate unchanged, while two members sought a reduction.

Swati Dhingra and Dave Ramsden again called for a 25 basis-point cut as they said the interest rate needed to become less restrictive now to enable a smooth and gradual transition in the policy stance, and to account for lags in transmission.

Some members in the no-change camp said today's decision was "finely balanced".

Policymakers said they remained prepared to adjust monetary policy as warranted by economic data to return inflation to the 2 percent target sustainably.

The MPC said it would continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labor market conditions, wage growth and services price inflation.

Inflation softened to the 2 percent target in May. Consumer price inflation is expected to increase slightly in the second half of this year, as declines in energy prices last year fall out of the annual comparison.

BoE staff forecast the UK economy to expand 0.5 percent in the second quarter, which was stronger than the 0.2 percent projected in May.

There is a good chance of a rate cut in August and that rates will fall to 3.00 percent in 2025, rather than to 4.00 percent as investors expect, said Capital Economics economist Ruth Gregory.

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