The Bank of England has held interest rates at 5.25% for a fifth consecutive time, but says the prospects for a cut are now “moving in the right direction”.
The nine-member rate-setting committee continued to collectively judge it was too early to contemplate a downwards move, despite further progress in taming inflation revealed earlier this week.
However, two members who had previously voted for a rate hike dropped that view.
It meant that eight of the nine supported no change while one other member Swati Dhingra backed, for the second meeting in a row, a reduction to 5%.
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The minutes of the meeting made it clear however that the Bank was still worried about the outlook for inflation.
Governor Andrew Bailey said: “We’re not yet at the point where we can cut interest rates, but things are moving in the right direction.”
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While the pace of price growth in the economy is hugely down on the 11% witnessed at the height of the energy-driven cost of living crisis, a headline reading of 3.4% remains well above the Bank’s target of 2%.
The committee is particularly worried that strong wage growth – riding well above the inflation rate at 6% – will stoke demand in the economy and create further inflationary pressures.
While inflation is expected to fall below the target rate in April, mostly due to plunging energy bills but also the latest fuel duty freeze, Bank forecasts have suggested the figure will creep up again.
Rate-setters want more vision on the picture ahead as global oil costs rise. Other concerns include price increases linked to disruption to shipping through the vital Suez Canal transit.
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Financial markets expected a Bank of England rate cut in June in advance of the meeting and that view persisted following the result of Thursday’s voting.
In advance of the rate decision, economists had seen August as being most likely.
The prospect of cuts would be welcome for the economy as a whole after the impact of 14 consecutive rate hikes – the medicine dished out by the Bank to bring down inflation – hit the economy hard.
Rate rises are a blunt tool designed to help prices ease by choking economic activity.
Higher borrowing costs exacerbated the squeeze on household and business budgets, with the country entering recession during the second half of 2023.
The UK is expected to have exited recession in the first quarter of this year – partly on the basis of hopes that rate cuts are coming.
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Mortgages rates, for example, are down on where they ended 2023 and spending has picked up.
The Bank is anxious to avoid a recovery for growth if inflation is still running hot.
The near-10% rise in the National Living Wage next month is among the challenges it faces. More recent private sector wage settlements are around the 5% level, on average.
