British BC kept interest rates at 5.25% ahead of the UK election

The Bank of England kept interest rates at a 16-year high of 5.25 on Thursday, and some officials said its decision not to cut borrowing costs was now “well balanced”.

The Fed's monetary policy committee voted 7-2 to keep interest rates on hold ahead of the July 4 election, in line with economists' expectations in a Reuters poll.

Only Vice President Dave Ramsden and Swati Dhingra argued for a reduction to 5%.

Bank of England Governor Andrew Bailey said in a statement that it was “good news” that the latest inflation data showed that inflation had reached its 2% target.

We have to ensure that inflation remains low, which is why we have decided to keep the interest rate at 5.25% for now, he said.

Bailey's statement differed from last month, when he said he was “confident” that the data was moving in the right direction for a rate cut.

The Bank of England's vote comes after the European Central Bank's decision this month to cut interest rates, while financial markets do not expect the Federal Reserve to make cuts until later this year.

Markets on Thursday saw a UK bank cut unlikely before September or November, although a Reuters poll of economists published last week had seen most expect a rate cut on August 1.

Any cuts may come too late for Prime Minister Rishi Sunak, whose Conservative Party is trailing opposition Labor by 20 points in pre-election polls.

Sunak has claimed credit for the fall in inflation since taking office in October 2022, which has hit a 41-year high of 11.1%, with Labor blaming previous Conservative leader Liz Truss' economic mismanagement for high mortgage rates.

The Bank of England said the election had no impact on its outcome.

The central bank expects inflation to rise above target as the effect of falling energy prices is removed from annual inflation data, and reiterated its May forecast of 2.5% in the second half of 2024.

The minutes showed that the decision to keep interest rates on hold was “well balanced” for some panel members, a sign that the central bank may be close to cutting interest rates.

The Bank of England said indicators of inflation stability – mainly wage growth and services inflation – moderated but remained elevated after its May meeting.