- Interest rates held at 5.25% for the seventh month in a row
- Seven MPC members voted to hold rates, with two voting for a cut
- Sticky core and services inflation played into BoE decision
- General election outcome could impact rate moves
Laura Suter, director of personal finance at AJ Bell, comments on the latest Bank of England interest rates decision:
“The chances of a rate cut were already very slim, but market hopes fell even further after yesterday’s inflation figures. Much of the public might have expected that once we hit the coveted 2% target for inflation the Bank would immediately start cutting rates. Sadly, that’s not the case. Sticky core inflation and higher services inflation all helped to play into the Bank’s decision not to cut rates.
“On top of that, the Bank has taken a vow of silence during the general election campaign – meaning that if it did cut interest rates it wouldn’t have been able to explain the decision. We know from previous Base Rate moves that the comments the Bank makes are almost as significant as the interest rate move itself. Without the ability to explain the thinking behind the decision and the future path for rates, it made sense for the bank to hold. The split in the vote was the same as last month, with seven preferring to stick and two voting to cut rates by 0.25 percentage points.
“The other elephant in the room is the outcome of the general election. Whoever makes it into Number 10 will be changing policy, taxes and the fortunes of the UK economy, all of which play into the economic data the Bank scrutinises every month. The MPC will likely want to examine any plans and the impact on inflation and other data before it makes the move to cut rates. If they are victorious, Labour have pledged an economic update in September – which casts some doubt on an August interest rate cut, as the Bank may decide to wait and see the outcome of that update before getting its axe out to cut rates.
“All of this is pretty frustrating for the general public, who may see politics getting in the way of interest rates being chopped. Every month that rates stay higher we see more people come off their cheap mortgage deals and onto far more expensive rates. While a small, quarter of a percentage point cut to rates isn’t going to have a dramatic effect on mortgage-holders’ monthly payments, it would be a step in the right direction for people looking down the barrel of paying hundreds more each month for their mortgage.”
