MNI BOE WATCH: Bank On Hold As MPC Splits Again

The Bank of England's Monetary Policy Committee kept interest rates unchanged at 4.25% at its June meeting, though more members than expected dissented, voting for a 25-basis-point cut. (see MNI BOE WATCH: Seen On Hold; Number, Names Of Dissenters Key )

The MPC voted by six to three to keep rates on hold, with Deputy Governor Dave Ramsden -- often seen as an early mover among the Bank insiders - and external members Alan Taylor and Swati Dhingra dissenting. They pointed to lower wage growth, signs of subdued consumer demand, risks to global growth and a continuing disinflation process.

According to the minutes, the majority bloc noted a two-sided inflation risk and said "the disinflationary process had continued, but there was not a strong case for further easing of monetary policy at this meeting".

DOWNWARD PATH

Despite keeping policy unchanged, Governor Andrew Bailey said "interest rates remain on a gradual downward path".

Bailey highlighted signs of softening in the labour market and said the MPC will "look carefully at the extent to which those signs feed through to consumer price inflation".

May inflation, at 3.4%. was in line with expectations, with the rate of increase in prices expected to remain around similar levels throughout this year, the minutes said. The Committee noted that global uncertainties remain elevated, including a risk of higher energy prices prompted by an escalation of conflict in the Middle East.

For now at least, the Committee seemed prepared to look through higher prices. "The rise was largely due to a range of regulated prices and previous increases in energy prices. Consumer price inflation is expected to remain broadly at current rates, falling back towards target next year," the statement said.

GUIDANCE UNCHANGED

The MPC left its guidance unchanged, saying "a gradual and careful approach" to the withdrawal of monetary policy restraint remains appropriate and it would need to remain restrictive for "sufficiently long". 

"Given the outlook, and continued disinflation, a gradual and careful approach to the further withdrawal of monetary policy restraint remains appropriate. Monetary policy is not on a pre-set path. At this meeting, the Committee voted to maintain Bank Rate at 4.25%," the Committee said.

With inflation back above 3%, the governor had to write to the Chancellor for the first time since March 2024 to explain the reason for missing the target and how the MPC would go about rectifying the deviation.