The Bank of England’s Monetary Policy Committee (MPC) kept interest rates unchanged at 5.25 per cent on Thursday, with Governor Andrew Bailey expressing optimism about the possibility of a rate cut soon.
The committee voted seven to two in favour of leaving rates unchanged. Committee members Dave Ramsden and Swati Dhingra voted in favour of cutting rates by 0.25 percentage points. Mr. Bailey said:
“We’ve had encouraging news on inflation and we think it will fall close to our 2% target in the next couple of months. We need to see more evidence that inflation will stay low before we can cut interest rates. I’m optimistic that things are moving in the right direction.”
The MPC said it needs to make more progress on factors such as services inflation and wage growth, which remain high at around 6 per cent, before it can cut rates.
The Bank of England expects inflation to fall more sharply than previously thought in the coming years, falling below the 2 per cent target to 1.5 per cent in 2026. Core consumer price index (CPI) inflation is expected to fall below the 2% target between April and June, but rise again to 2.6% in the second half of this year as the impact of the recent decline in energy prices fades.
Over the longer term, the Bank lowered its forecasts for CPI inflation to 2.25 per cent in 2025 and 1.5 per cent in 2026, down 0.25 and 0.5 percentage points respectively from February’s estimates.
The forecast was published in the Bank’s May Monetary Policy Committee report, which highlighted optimism fuelled by the recent decline in retail inflation.
The report said that continued high interest rates helped to reduce core inflation as the MPC voted again to keep rates at 5.25 per cent.
The pound fell against the US dollar and the euro after the Bank of England signalled growing support for interest rate cuts among policymakers. Sterling fell 0.3 per cent to 1.246 US dollars and 0.2 per cent to 1.161 euros.
