The Bank of England’s Monetary Policy Committee has kept interest rates at 5.25% despite falling inflation.
The committee, which sets policy to help the economy meet the government's 2% inflation target, voted 7-2 to maintain rates at their current level. Members Dave Ramsden and Swati Dhingra voted to cut rates by 0.25 percentage points.
Headline CPI inflation fell to 2% in May, but the MPC has in the second half of the year "as declines in energy prices last year fall out of the annual comparison".
The Banbk said: "At this meeting, the Committee voted to maintain Bank Rate at 5.25%. Headline CPI inflation has fallen back to the 2% target. The restrictive stance of monetary policy is weighing on activity in the real economy, is leading to a looser labour market and is bearing down on inflationary pressures. Key indicators of inflation persistence have continued to moderate, although they remain elevated.
"Monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term in line with the MPC’s remit. The Committee 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."
Chris Baguley, a director at North West-based property finance specialist Together said: “It’s disappointing that the Bank of England hasn’t cut rates today, despite inflation now coming down to the 2% target level quicker than expected.
“A base rate reduction would have allowed lenders to consider lowering their own rates for millions of SMEs across the Ƶ – giving a boost to the country’s sluggish growth - but it will now be August or even September at the earliest before we see any movement.
“And, while it’s understandable the BoE is showing some level of caution as it keeps an eye on sticky underlying inflation, it would be fantastic to see it take the bold step of reducing rates to really get Ƶ plc moving.
“Our latest research highlights there’s a huge pent up demand from Ƶ SME owners to invest an estimated £2.4trillion into their businesses over the next two years, if they can overcome funding challenges currently holding them back.”
Michael McGowan, managing director, foreign exchange at Bibby Financial Services., said: "The Bank of England’s decision to hold rates, despite a recent drop in inflation to 2%, was expected and appears to reflect a ‘wait and see’ approach until a new government has been elected. It means SMEs will need to wait longer for the confidence boost they need to enable them to invest in growth. Given that SMEs make up 99% of the Ƶ’s business community, this decision also means the significant contribution they can make to the Ƶ economy overall will be kicked further down the road, likely until after August."
