The Bank of England voted 6-3 to keep interest rates unchanged at 4.25%, as expected, at its meeting just moments ago, while three members favored a 25 basis point cut.
The Bank’s interest rate report stated that inflation had declined significantly over the past two years as previous external shocks receded. This, coupled with the long-term stability of inflation, allowed the Committee to ease its fiscal consolidation policy while maintaining the interest rate within the restrictive range.
UK underlying GDP remained weak and the labor market continued to slow, leading to clearer signs of a widening recession over time. The Committee expects a marked slowdown for the remainder of the year. The Committee remains vigilant about the impact of easing wage pressures on price inflation.
Consumer price index inflation rose to 3.4% in May from 2.6% in March, in line with the Committee’s forecast in its May Monetary Policy Report. Inflation is expected to remain at current levels throughout the rest of the year before declining towards the target next year. Global uncertainty remains high, and energy prices have risen due to the escalation of the conflict in the Middle East. The Committee will remain vigilant against the growing unpredictability in the economic and geopolitical environment. The Committee remains focused on returning inflation to the target level. The Committee will continue to closely monitor inflation risks and assess the risks to the economy. A gradual and cautious approach to further easing monetary policy remains appropriate. Monetary policy will need to remain tight for a sufficient period to dissipate the risks of a sustained return of inflation to the 2% target over the medium term. The Committee will decide on the appropriate degree of policy tightening at each meeting.