Bank of England holds interest rates steady despite inflation easing to 2% target

Seven members of the Monetary Policy Committee voted to hold, while two favored to cut by 25 basis points, the same as during the bank’s May meeting.

In a statement, the MPC noted inflation had reached the central bank’s target and said indicators of “short-term inflation expectations” and wage growth had eased.

It was “very difficult to gauge the evolution of labour market activity” because of uncertainty around estimates from the Office for National Statistics, the MPC added.

In a repeat of previous messaging that some analysts had thought it may drop, it again said monetary policy needs to “remain restrictive for sufficiently long to return inflation to the 2% target sustainably.”

Inflation data on Wednesday showed headline price rises cooled to 2% in May, meeting the central bank’s target ahead of the U.S. and the euro zone, despite the U.K. suffering a sharper spike inflation over the last two years.

However, economists say the U.K.’s continued high rates of services and core inflation suggest the potential for ongoing upward pressure.

The U.K. decision to hold comes just two weeks out from a general election in which the state of the economy and proposals for rebooting sluggish growth have emerged as a key battleground.

Despite speculation that the politically-independent BOE might act more cautiously as a result of the upcoming vote, Governor Andrew Bailey had emphasized that it would remain focused on its own data.

Attention will now turn to the prospects of an August rate cut. Money market pricing indicated just a 40% chance of this following Thursday’s statement.

The British pound extended losses against the U.S. dollar, trading 0.2% lower at $1.2685 at 12:24 p.m. in London.

Other central banks in Europe have already begun to ease monetary policy, including the Swiss National Bank, European Central Bank and Sweden’s Riksbank, as they seek to reboot economic growth.

That’s even as the U.S. Federal Reserve, sometimes viewed as the central bank leader due to the U.S.’s outsize influence on the global economy, has left traders pondering when its first rate cut will come. Money market pricing suggests a 64% chance of a September cut, according to LSEG data.