Interest rates held, for now – Economist’s view

Commenting on the Bank of England’s decision to hold interest rates today, Max Shepherd, Group Economist at Yorkshire Building Society, said:

“The Bank of England has agreed to leave the base rate unchanged, at 5.25%, as expected. Andrew Bailey has said he is optimistic things are moving in the right direction, implying interest rate cuts are on the way.

“Seven members voted to keep rates unchanged, two voted for a cut. This is one more dissenting vote than the previous meeting, another sign that we are getting closer to lower rates.

“We still expect interest rates in the UK to go down this year – it’s just a question of when.

“The market currently expects only two cuts this year, though at the end of 2023 there was an expectation of five or six in 2024.

“US inflation is increasing again, one of the main reasons we expect fewer interest rate cuts this year. The market’s expectation of future interest rates in the UK is highly sensitive to data in the US, as well as here.

“The US are thought to be less likely to lower interest rates in the coming months, which makes the Bank of England less likely to cut too.

“UK data is also having an influence. While inflation is slowing, there are signs of persistence in the price of services and the labour market is proving more resilient than anticipated.

“The market thinks the Bank of England will cut by August, but with each data release changing the expected timing, the recent volatility looks set to continue for now.”