Bank of England Holds Bank Rate at 5.25% in Seven-to-Two Vote Ahead of UK General Election

The Bank of England's Monetary Policy Committee voted seven to two on 20 June 2024 to hold Bank Rate at 5.25%, keeping borrowing costs at a 16-year high as policymakers weighed a return of headline inflation to target against persistent stickiness in services prices. The decision was published in the bank's monetary policy summary and minutes on the same day.

The two dissenting members, Swati Dhingra and Dave Ramsden, voted to cut the rate by 25 basis points. Their view was that the balance of risks had shifted sufficiently to justify a reduction, but the seven-member majority concluded that more evidence of sustained disinflation across the full basket of prices was required before committing to a cut.

INFLATION ON TARGET BUT SERVICES REMAIN ELEVATED

UK consumer price inflation fell to 2.0% in May 2024, exactly meeting the Bank of England's target for the first time since the post-pandemic surge in prices began. The Committee highlighted that services inflation, which is a closer reflection of domestically generated price pressures, remained elevated and had not declined at the pace that most members required to feel comfortable reducing rates.

The majority indicated that it needed to see further evidence that services inflation was on a convincing downward path before concluding that the 2.0% target could be sustained over the medium term, rather than having been reached only temporarily given base effects and goods price deflation.

The Committee judged that the labour market continued to loosen but remained relatively tight by historical standards, with wage growth still elevated. The MPC's mandate is to meet the 2.0% target sustainably, and the committee indicated it was not yet satisfied that conditions warranted a reduction in the cost of borrowing.

GENERAL ELECTION

The June meeting took place against the backdrop of the United Kingdom's forthcoming general election, scheduled for 4 July 2024. The Bank of England operates independently of the government.

The Bank noted that monetary policy would remain restrictive for sufficiently long to return inflation to the 2.0% target sustainably. The next meeting of the Monetary Policy Committee is scheduled for August, and the Committee stated it would continue to take a data-dependent approach, assessing each decision on the basis of the most recent available economic evidence.