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Bank of England | AccountingWEB | Interest rates held for seventh consecutive time
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Interest rates held for seventh time in a row

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As expected, the Bank of England has again held the interest rate at 5.25% while noting that the timing of the general election on 4 July was “not relevant to its decision at this meeting”.

20th Jun 2024
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Interest rates have been held by the Bank of England (BoE) for the seventh time in a row.

At its meeting ending on 19 June 2024, the Monetary Policy Committee (MPC) voted by a majority of 7 to 2 to maintain the bank rate at 5.25%, in a decision that will come as no surprise to economists.

As was the case in May, two members preferred to reduce it by 0.25 percentage points, to 5%.

The news - albeit unsurprising - will come as a blow to Prime Rishi Sunak who would’ve been hoping to have something to shout about on the campaign trail.

In its update, the MPC said that the timing of the general election on 4 July was “not relevant to its decision at this meeting, which would as usual be made on the basis of what was judged necessary to achieve the 2% inflation target sustainably in the medium term”.

Range of views

The BoE noted that among those who voted to maintain the rate, there continued to be a range of views about the “extent of accumulated evidence that was likely to be needed to warrant a change in Bank Rate, and the degree to which incremental information was leading them to update materially their assessment of inflation persistence”.

This came on the back of headline CPI inflation having fallen back to the 2% target.

“For some members within this group, the return of headline inflation to 2%, while welcome, was not necessarily indicative of the required sustained return to target,” said the BoE.

“Continued high levels of, and upside news to, services inflation supported the view that second-round effects would maintain persistent upward pressure on underlying inflation.

“For other members within this group, the upside news in services price inflation relative to the May Report did not alter significantly the disinflationary trajectory that the economy was on. This view was supported by evidence that the recent strength in services inflation included regulated and indexed components of the basket, and volatile components.

“The impact of the increase in the National Living Wage (NLW) this April on aggregate pay growth was unlikely to be as large in future. Such factors would not push up medium-term inflation. For these members, the policy decision at this meeting was finely balanced.”

Less restrictive

For the two members who voted for a cut, they believe that the rate needs to become less restrictive now “to enable a smooth and gradual transition in the policy stance, and to account for lags in transmission”.

“CPI inflation had been on a firm downward trajectory for some time and had returned to the 2% target in May. It was forecast to stay close to 2% in the short term, consistent with the further easing in the labour market, forward-looking indicators of inflation and pass-through, and continued falls in inflation expectations.

“Given the subdued outlook for demand, the risks to inflation remaining sustainably at the target in the medium term were to the downside.”

Looking ahead, the BoE stressed that the MPC “remains prepared to adjust monetary policy as warranted by economic data to return inflation to the 2% target sustainably”.

“It will therefore 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 labour market conditions, wage growth and services price inflation.”

As part of the August forecast round, members of the MPC are set to “consider all of the information available and how this affects the assessment that the risks from inflation persistence are receding”.

“On that basis, the committee will keep under review for how long the Bank Rate should be maintained at its current level.”

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By Justin Bryant
20th Jun 2024 13:06

Again, the usual bias shown towards borrowers rather than savers.

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By Ruddles
20th Jun 2024 14:12

Again, exactly as it should be given the relative impacts on the respective groups.

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