Experts expect the Bank of England to hold interest rates this Thursday to avoid “rocking the boat” in the run-up to the general election.
With inflation falling sharply last month and nearing its 2 per cent target level, the Bank’s Governor, Andrew Bailey, said he was “optimistic that things are moving in the right direction”.
The announcement raised hopes that the prolonged period of higher interest rates could soon be eased.
But experts think the bank is not quite ready to reduce rates, which have stood at 5.25 per cent since August last year, the highest level since 2008.
June’s meeting happening during the general election campaign could be enough to deter a rate cut, some analysts predicted.
The bank is abiding by the rules of the pre-election campaign period, meaning its policymakers cannot make any speeches or public statements.
Sandra Horsfield, an economist for Investec, said this matters because were policymakers to “surprise the market” with its decision on Thursday, it would not be in a position to “correct any misinterpretations” about its rates decision until after the general election, which is on July 4.
“Why rock the boat, when there is no need for haste and no opportunity to steady it?,” she asked.
Financial markets are expecting interest rates to be kept the same this month, with just a small chance that they will be cut.
Furthermore, experts said that the bank will have taken note of last month’s inflation data, with services sector inflation coming in ahead of the bank’s expectations.
The measure, which looks at price rises across the sector, is “overwhelmingly what is driving policy decisions right now”, economists at ING said.
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The MPC will also have seen new inflation data for May on Wednesday, which some economists think will hit, or fall very close to, 2 per cent.
A group of analysts for AJ Bell said the bank’s “job may have been slightly complicated by both the calling of a general election for July 4 and the last batch of inflation data”.
“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,” they said.
Investec said it thinks the first rate cut could come in August, but that two members of the committee: Swati Dhingra and Dave Ramsden, were likely to vote again in favour of a cut on Thursday.
Updated: June 16, 2024, 11:01 PM
