Bank of England expected to rule out pre-election interest rate cut
The Bank of England is expected to say there is not enough evidence yet that inflation has been sufficiently tamed to justify an interest rate cut.
The Bank of England is set to dash any hopes Prime Minister Rishi Sunak may have had of a pre-election cut in its base rate on Thursday.
Members of the Bank’s Monetary Policy Committee are likely to vote 7-2 to keep the base rate at 5.25 percent.
It is expected to say that between a stronger-than-expected performance from the economy and sticky wage growth, there is not enough evidence yet to say inflation has been sufficiently tamed to justify a rate cut.
At the same time, economists say the MPC is likely to hold fire on rates to avoid any appearance of favouring the incumbent Conservative Government.
Ruth Gregory, Capital Economics’ deputy chief UK economist, said: “Unless a rate cut is obviously required right now, and it is not, there’s an incentive for the BoE to do nothing to avoid any unjustified suspicion of it being politically motivated."
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In order to tame runaway inflation, the Bank raised its base rate 14 consecutive times from 0.1 percent to its current level, where it has been since August.
Although markets believe the Bank will make its first cut in November, by a quarter of a percentage point, economists say it could happen as early as August.
Robert Wood, chief UK economist at Pantheon Macroeconomics, said although the inflationary pressure on the economy is easing more slowly than expected, official data due before the MPC’s August 1 meeting should contain enough in it to justify a rate cut.
He said: “We think the MPC is itching to follow the European Central Bank and cut rates, so we continue to look for a first rate reduction in August."
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Bank of America Europe economist Ruben Segura Cayuela said that while it expects the MPC to be cautious in its rate-cutting approach, it still expects six cuts between now and the end of 2025.
He said: “The near-term path is likely to reflect a cautious reduction of restriction, given the upside risks posed by wage growth and services inflation.
“We expect two cuts from the Bank this year, in August and November, and four cuts in 2025 such that the Bank Rate reaches 3.75 percent by the end 2025.”
On Wednesday, the Office for National Statistics is tipped to say that annualised consumer price index inflation fell back to the Bank’s official two percent target in May. In April it was 2.3 percent. At the end of the week, economists expect it to say that the Government borrowed £15.4billion last month, versus £14.3billion for the same month last year.