MNI BOE WATCH: On Hold, But August Rate Cut In Focus

The Bank of England left Bank Rate unchanged at 5.25% in June, with seven of nine Monetary Policy Committee members voting for Governor Andrew Bailey's proposal, though there were hints in the minutes that more policymakers will move towards policy easing in the months ahead. 

While only Dave Ramsden and Swati Dhingra voted for a 25-basis-point cut, as they did in May, the minutes indicated that some of the group who voted for unchanged rates saw the decision as “finely balanced.” At the August meeting, members will consider "all of the information available and how this affects the assessment that the risks from inflation persistence are receding,” the minutes said.

Financial markets repriced the odds on an August cut to around 50/50 following the release.

Overall guidance in the policy statement was unchanged, with the Committee again noting that policy will need to remain restrictive for sufficiently long to return inflation sustainably to 2%. The MPC has said since November that policy needs to be restrictive for an extended period. (See MNI BOE WATCH: On Hold And Splits Set To Continue)

The MPC again said it is prepared to adjust policy as warranted to return inflation to target and will monitor closely indications of persistent price pressure.

LOWER INFLATION

Headline inflation fell to 2.0% in May, in line with the MPC's target for the first time since July 2021, but policymakers noted that while indicators of inflation persistence have continued to moderate, they "remain elevated".

Although the meeting fell within the campaign period ahead of the July 4 general election, the MPC said the proximity of the vote had not impacted the decision-making process. Bank officials will remain in “purdah” until after the election, barring statutory announcements.

In a statement alongside the release, Governor Andrew Bailey said "It's good news that inflation has returned to our 2% target. We need to be sure that inflation will stay low and that's why we've decided to hold rates at 5.25% for now"