Bank of England holds interest rate at 5.25% despite fall in inflation rate

Bank of England holds interest rate at 5.25%

The Bank of England (BoE) has decided to maintain the interest rate at 5.25% despite inflation reaching its target rate of 2%. This decision was made by a majority vote of 7–2 during the Monetary Policy Committee (MPC) meeting that ended on June 19, 2024. Two members of the committee advocated for a reduction of the Bank Rate by 0.25 percentage points, to 5%.

One key reason for this decision is the uncertainty surrounding the estimates from the ONS Labour Force Survey, which has made it challenging to accurately assess the labour market's evolution. Although a variety of indicators suggest that the labour market is loosening, it remains relatively tight compared to historical standards. In a previous article, we highlighted findings from the ONS survey including indications that the unemployment rate had reached its highest level in over two years, accompanied by a drop in job vacancies. These factors have contributed to the BoE's cautious approach to holding the interest rate steady.

The next monetary policy meeting of the BoE is scheduled for August 1, 2024. This meeting will be particularly significant as it will follow the conclusion of the general elections in July, and observers will be closely monitoring various economic indicators in anticipation of any potential changes.

To access the full summary and minutes of BoE’s meeting, click here.