Bank of England holds interest rates at 16-year high of 5.25%

9 May 2024, 12:04 | Updated: 9 May 2024, 12:57

The Bank of England has maintained interest rates at 5.25%
The Bank of England has maintained interest rates at 5.25%. Picture: Alamy

By Asher McShane

The Bank of England has announced it is keeping the base rate of interest on hold at a 16-year-high of 5.25%.

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The Bank of England has maintained interest rates at 5.25% at its May Monetary Policy Committee (MPC) meeting, with governor Andrew Bailey signalling optimism that it may soon cut rates.

The committee voted by a majority of seven to two to keep rates unchanged. Members Dave Ramsden and Swati Dhingra voted to cut rates by 0.25 percentage points.

Mr Bailey said: "We've had encouraging news on inflation and we think it will fall close to our 2% target in the next couple of months.

"We need to see more evidence that inflation will stay low before we can cut interest rates. I'm optimistic that things are moving in the right direction."

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The MPC indicated it is still looking for more progress on factors including services inflation and wage growth, which have remained persistently high at about 6%, before cutting rates.

Inflation is expected to fall more than previously thought over the coming years, the Bank of England has projected, dropping below its 2% target to 1.5% in 2026.

Headline Consumer Price Index (CPI) inflation is expected to fall below the Bank's 2% target between April and June, but rise again to 2.6% in the second half of this year as the impact of recent drops in energy prices fades.

In the longer term, the Bank dropped its projections for CPI inflation to 2.25% for 2025 and 1.5% in 2026, down 0.25 and 0.5 percentage points respectively on February estimates.

The projection came in the Bank's May Monetary Policy Committee (MPC) report, which signalled optimism from recent falls in retail inflation.

The report said persistently high interest rates had helped push headline inflation down, as the MPC voted again to maintain rates at 5.25%.

The pound fell against the US dollar and euro after the Bank of England signalled growing support for an interest rate cut among policymakers.

Sterling fell 0.3% to 1.246 US dollars and was 0.2% lower at 1.161 euros.