Homeowners were left disappointed today when the Bank of England left interest rates unchanged at 5.25%.
The Bank’s rate setting Monetary Policy Committee (MPC), chaired by Governor Andrew Bailey, voted by 7 to 2 to leave the cost of borrowing on hold at a 16 year high once again.
That means that the Bank’s benchmark rate will have been left at the same level for a full year by the time the MPC next meets in August.
The decision was expected in the City but is nevertheless a blow to millions of mortgage holders and businesses suffering under the strain of high interest rates.
It also another setback for Rishi Sunak and Tory strategists who had hoped there might be a morale boosting cut before the country goes to the polls on July 4 .
The MPC said that the timing of the general election on “was not relevant to its decision at this meeting.”The decision comes the day after the headline rate of inflation, the Consumer Prices Index, fell back to its target rate of 2% for the first time in almost three years.
However, MPC members remain cautious in part because wages are still growing at an uncomfortably high 6% according to latest data from the Office for National Statistics (ONS). There is also concern about the pace of services inflation which was rising by 5.7% in May.
The voting split was the same as last month but the minutes of the MPC meeting said that for some members the decision was “finely balanced” suggesting they might be prepared to vote for a cut in August.
The MPC said it “has judged since last autumn that monetary policy needs to be restrictive for an extended period of time until the risk of inflation becoming embedded above the 2% target dissipates.”
Lindsay James, investment strategist at City fund manager Quilter Investors, said: “Though inflation hitting 2% marked a significant milestone, it is simply not enough to allow the Bank of England to declare job done. Instead, the monetary policy committee has opted to leave interest rates unchanged once more.
“While it will come as a bitter blow to the Conservative party, this decision is no real surprise given month-on-month figures suggest inflation is unlikely to remain at 2% for long. It is instead expected to rise again later this year and ultimately settle between 2% and 3%.
“The Bank will be keeping a keen eye on wage growth, which remains around 6%, as well as services inflation which has been taking its time in coming down and has continued to feed into elevated core inflation.”Tobias Gruber, CEO of credit union loan broker My Community Finance, said “It’s a bitter pill to swallow for homeowners in particular, who have been forced to shoulder the burden of getting inflation under control, while the banks continue to make record profits.
“This situation raises fundamental questions about the fairness of the current economic approach and whether it genuinely serves the interests of hardworking individuals.”
