Bank of England expected to leave interest rates unchanged this month

17 June 2024 , 09:18

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The Bank of England is unlikely to change interest rates this week, say economic analysts (Image: PA Archive/PA Images)

Expectations that the Bank of England might cut interest rates this month are likely to be quashed, as insiders predict it will avoid major moves before the General Election.

The central bank is set to reveal its latest stance on interest rates on Thursday. The Bank's Governor Andrew Bailey said last month that there were positive signs that a cut might be possible soon, noting a sharp decline in inflation and its approach towards the 2% target.

However, the consensus among experts is that the Bank isn't quite poised to lower the rates, which have been at 5.25% since August of the previous year, the peak since 2008. With the General Election campaign in full swing during June's meeting, some analysts believe it could sway the Bank from altering rates.

During the pre-election period, the Bank's officials are restricted from making speeches or public comments. Investec economist Sandra Horsfield highlighted the significance of this silence, pointing out that if the Bank were to "surprise the market" with a rate change on Thursday, it wouldn't be able to "correct any misinterpretations" until post-General Election, scheduled for July 4.

"Why rock the boat, when there is no need for haste and no opportunity to steady it? ," she queried. Market predictions lean towards a hold on interest rates this month, with only a slim possibility of a reduction.

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Moreover, experts have noted that last month's inflation data, particularly the services sector inflation which exceeded the Bank's expectations, will have been a key consideration for the Bank. This measure, which examines price increases across the sector, is "overwhelmingly what is driving policy decisions right now", according to economists at ING.

The Monetary Policy Committee (MPC) would also have had access to new inflation data for May on Wednesday, which some economists believe will either reach or come very close to 2%. Analysts at AJ Bell suggested that the Bank's task may have been slightly complicated by both the announcement of a general election for July 4 and the latest batch of inflation data.

They said: "Governor Andrew Bailey and his colleagues on the MPC may not wish to act in any way that could be seen as favouring one political party over another in the run-up to July's poll."

Investec has predicted that the first rate cut could occur in August, but that two committee members, Swati Dhingra and Dave Ramsden, are likely to vote again in favour of a cut on Thursday.

Lawrence Matheson