The Bank of England Monetary Policy Committee left interest rates unchanged at its May meeting and moved further along the path towards a cut, with Deputy Governor Dave Ramsden joining Swati Dhingra in voting for a cut and with the inflation projections lowered.

The MPC voted 7-2 to keep Bank Rate at 5.25%, with the majority maintaining their March vote.

The analysis in the quarterly Monetary Policy Report showed that the measures of inflation persistence that the MPC has focused on had moderated as expected. On the market rate path, CPI was again shown hitting the 2.0% target this quarter before moving back up but with the rebound less pronounced than in the previous projections, with CPI at 2.6% in a year's time and below target, at 1.9% in Q2 2026 and 1.6% three years out.

The projections make clear that, if the economy evolves anything like as expected, rate cuts are needed. On the constant 5.25% rate projection CPI was projected to be 1.3% in Q2 2026 and just 0.9% at the end of the three year forecast.

The MPC's guidance in its summary, that "policy will need to remain restrictive for sufficiently long to return inflation to the 2% target" was unchanged but in the minutes the committee downplayed the relevance of this for policy moves ahead, stating that policy could "remain restrictive even if Bank Rate were to be reduced."

INFLATION PERSISTENCE

The minutes made clear that there are fractures among the seven members backing no change at the May meeting, noting a range of views about the evidence needed to just a cut in Bank Rate and over what would lead to members changing their views on inflation persistence.

Governor Andrew Bailey said in a statement that the news on inflation was encouraging although they needed "to see more evidence that inflation will stay low before we can cut interest rates" adding that he was "optimistic that things are moving in the right direction."

DISSENTERS

Dhingra and Ramsden argued that inflation had been of a firm downward trajectory for some time and that with subdued demand and job vacancies falling and pay growth easing the risks to inflation returning sustainably to target were to the downside.

The collective inflation forecasts in the MPR, however, had no downside skew with the risks shown as perfectly balanced for each data point.

The forecasts assumed a marked rise in the household saving ratio to 11% in 2024 from 9.75% in 2023. Consumption was forecast to grow by 1.25% in 2025, revised up from 0.75% but still below historic norms -- it averaged 3.25% in the decade before the financial crisis and 2% in 2010-2019.

UK GDP growth was forecast to be 0.5% this year and 1.0% in 2025, partly reflecting the fading hit from high energy prices.