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Rishi Sunak’s hopes of a pre-election interest rate cut are likely to be dashed today, in one of the most politically sensitive monetary policy decisions in years.
The Bank of England will set interest rates at noon, and is widely expected to leave them on hold at 5.25%, a 16-year high.
Yesterday’s fall in inflation, back to the BoE’s 2% target, gives its monetary policy committee (MPC) a good reason to consider cutting rates, to take some of the pressure off borrowers.
However, policymakers will have noted, glumly, that inflation in the services sector is running much hotter, with prices up 5.7% in the last 12 months.
Sanjay Raja, Deutsche Bank’s chief UK economist, says: "While calls for an imminent rate cut will grow, given headline CPI’s descent to 2%, there’s likely to be growing concerns around the stickiness surrounding services inflation."
There may not be unanimity about today’s decision. At the last meeting, in May, two MPC members voted to cut rates, but were out numbered by their seven colleagues who voted for no change.
City economists expect another 7-2 split today, with Swati Dhinga and deputy governor Dave Ramsden expected to again push for a rate cut.
The minutes of this week’s meeting will also be published at midday, giving an insight into the Bank’s views about the health of the economy, and the prospects for growth and inflation.
Conservatives may be disappointed if the Bank leaves rates on hold again today, as some – such as former Cabinet minister Sir Jacob Rees-Mogg – have been calling for rate cuts this year.
An interest rate cut would, arguably, bolster Sunak’s claims that the economy has turned the corner.But the Bank is likely to be concerned that inflationary pressures could still be lurking in the economy.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, explains: "First, services inflation remains high – perhaps too high near 6% - to let the BoE cut rates with a peace of mind as services make up around 80% of the British economy.
"And second, consumer prices could rapidly rebound if natural gas market tightens as traders rush to replenish their stockpiles before winter.
"As such, if the BoE doesn’t announce a rate cut today, it’s not because they don’t want to put their nose into the country’s political affairs with the upcoming general election, but it’s mostly because the underlying inflationary factors are not yet convincing enough to allow them to do so."
It’s a busy day for central bank news, with Switzerland and Norway also setting interest rates.
The agenda
• 7am BST: European car sales for May
• 8.30am BST: Swiss National Bank interest rate decision
• 9am BST: Norwegian interest rate decision
• Noon BST: Bank of England interest rate decision
• 1.30pm BST: US housing starts for May
• 1.30pm BST: US weekly jobless data
We’ll be tracking all the main events throughout the day ... |
| | | Marina Hyde | | Guardian columnist |
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| | All aboard the election rollercoaster
Covering the past however many years in British politics has been a rollercoaster. If I were Liberal Democrat leader Ed Davey I would obviously illustrate that point by simply being pictured on a rollercoaster. But look – I want you to know I am writing this while on a rollercoaster. Please excuse any typos.
I wouldn’t go so far as to say that writing about the many, many recent prime ministers has been therapy, but it has felt good to “talk things through” with readers who have also been strapped to the rollercoaster with their eyes held open.
Of course, other metaphors are available – in fact, UK governance has arguably worked very hard in recent years to become its own metaphor. So here we all are, shoulder-deep in the waters of the general election, as though it were one of our great rivers / brown-flag beaches.
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