The Bank of England in London. PA
The Bank of England in London. PA
The Bank of England in London. PA
The Bank of England in London. PA

News

UK

Bank of England set to hold interest rates in run-up to general election

June’s meeting could be enough to deter a rate cut, some analysts predict

Soraya Ebrahimi
Soraya Ebrahimi

June 16, 2024

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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.

READ MORE

UK general election on July 4: Everything you need to know

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.

Inflation around the world - in pictures

People queue to buy wheat flour at government-controlled prices in Islamabad. Pakistan's economy has been hit hard by a political crisis, as well as devastating floods and the global energy crisis, with the rupee plummeting and inflation at decades-high levels. AFP
People queue to buy wheat flour at government-controlled prices in Islamabad. Pakistan's economy has been hit hard by a political crisis, as well as devastating floods and the global energy crisis, with the rupee plummeting and inflation at decades-high levels. AFP
A market in Rio de Janeiro. Brazil's inflation ended 2022 with a sharp slowdown from double-digit peaks seen throughout the year. Reuters
A market in Rio de Janeiro. Brazil's inflation ended 2022 with a sharp slowdown from double-digit peaks seen throughout the year. Reuters
A market in Istanbul. Turkey's inflation at the end of 2022 stood at 64. 27 per cent, the country's Statistical Institute said, while the independent group of inflation researchers ENAG calculated it at 137. 55 per cent. EPA
A market in Istanbul. Turkey's inflation at the end of 2022 stood at 64. 27 per cent, the country's Statistical Institute said, while the independent group of inflation researchers ENAG calculated it at 137. 55 per cent. EPA
A Walmart in New Jersey. According to a poll, US Republicans and Democrats have distinct views of what’s most important for the government to address amid high inflation. More Republicans name gas and food prices, energy and immigration, while Democrats focus on health care, climate change and poverty. AP
A Walmart in New Jersey. According to a poll, US Republicans and Democrats have distinct views of what’s most important for the government to address amid high inflation. More Republicans name gas and food prices, energy and immigration, while Democrats focus on health care, climate change and poverty. AP
A used car sales lot in California. US Federal Reserve officials have indicated it’s possibly too early to declare victory over inflation. AFP
A used car sales lot in California. US Federal Reserve officials have indicated it’s possibly too early to declare victory over inflation. AFP
A person walks by a sign showing interest rates at a bank in New York. EPA
A person walks by a sign showing interest rates at a bank in New York. EPA
A woman walks with purchases past a store in Berlin. In December, consumer price growth across the Euro zone slowed to 9.2 per cent from 10.1 per cent a month earlier, Eurostat data showed last week. AP
A woman walks with purchases past a store in Berlin. In December, consumer price growth across the Euro zone slowed to 9.2 per cent from 10.1 per cent a month earlier, Eurostat data showed last week. AP
Workers sit in front of a banner reading "Stop the Inflation Monster" at the Burchardkai Container Terminal as they go on strike for higher wages at the harbour in Hamburg, Germany. Reuters
Workers sit in front of a banner reading "Stop the Inflation Monster" at the Burchardkai Container Terminal as they go on strike for higher wages at the harbour in Hamburg, Germany. Reuters
Price tags at a market in Nice, France. Reuters
Price tags at a market in Nice, France. Reuters
Commuters cross Waterloo Bridge in London. The British Retail Consortium said spending in store chains rose by 6.9 per cent in annual terms in December, but this was a long way off consumer price inflation, which hit 10.7 per cent in November. Reuters
Commuters cross Waterloo Bridge in London. The British Retail Consortium said spending in store chains rose by 6.9 per cent in annual terms in December, but this was a long way off consumer price inflation, which hit 10.7 per cent in November. Reuters
Jobseekers in Johannesburg. South Africa’s governing party wants the central bank’s mandate broadened to shore up the economy and promote employment in addition to its existing task of tackling inflation. Reuters
Jobseekers in Johannesburg. South Africa’s governing party wants the central bank’s mandate broadened to shore up the economy and promote employment in addition to its existing task of tackling inflation. Reuters
Social grant recipients stand in a queue outside a post office, as joblessness takes its toll in Meadowlands, South Africa. Reuters
Social grant recipients stand in a queue outside a post office, as joblessness takes its toll in Meadowlands, South Africa. Reuters

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.

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Updated: June 16, 2024, 11:01 PM`
UKUK general election 2024InflationInterest rates

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