Interest rates – live: Bank of England holds at 5.25% as Bailey says he will not bow to pressure to cut rates

The Bank of England has not ruled out cutting rates at its next Monetary Policy Committee decision.

Andrew Bailey, governor of the Bank, said that upcoming economic data would be key to helping the MPC decide whether to cut rates on 20 June.

He said: “Before our next meeting in June, we will have two full sets of data – for inflation, activity and the labour market – that will help us in making that judgement afresh.

“But, let me be clear, a change in bank rate in June is neither ruled out nor a fait accompli.”

The Bank of England has kept interest rates on hold at 5.25 per cent for the ninth month in a row.

My colleague Jane Dalton has more in this report:

The Bank of England has projected that inflation will fall more than previously thought over the coming years – dropping below its 2 per cent target to 1.5 per cent in 2026.

Headline CPI inflation is expected to fall below the Bank’s 2 per cent target between April and June, but rise again to 2.6 per cent 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 per cent for 2025 and 1.5 per cent in 2026, down 0.25 and 0.5 percentage points respectively on the Bank’s 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.

Governor Andrew Bailey has signalled optimism that the Bank of England could soon cut rates.

The Bank’s Monetary Policy Committee voted by a majority of seven to two to keep rates unchanged – with members Dave Ramsden and Swati Dhingra voting 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 per cent 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.”

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 per cent, before cutting rates.

The Bank of England said it expects the UK economy to grow by 0.5 per cent this year and 1 per cent in 2025 – slightly higher than previous predictions.

The Bank of England has opted to keep interest rates at a 16-year high of 5.25 per cent – confounding hopes of the first base rate cut since 2020.

We’ll bring you more updates here as we get them.

Bank of England chief Andrew Bailey is unlikely to give a clear signal on exactly when the bank’s first interest rate cut since 2020 might come – but focus will be on what guidance he does give and if more than one member of the Bank’s Monetary Policy Committee votes for a cut this time around, according to Pimco economist Peder Beck-Friis.

“We know from history that policy meetings may create some volatility,” Mr Beck-Friis said.

“What is also interesting is that we have come from a few years where monetary policy has been very correlated globally ... but as the pandemic shocks fade I think it is natural that we see some divergence,” he added – pointing to how Sweden and Switzerland had already cut rates while the US may need to wait longer.

The pound edged lower against the US dollar this morning ahead of the Bank of England’s policy meeting, with the central bank expected to hold rates steady but flag when it intends to lower the cost of borrowing.

According to LSEG data, money markets are pricing in an almost 95 per cent chance that the Bank will hold its benchmark interest rate at 5.25 per cent – the highest since 2008. But investors will be watching for signs of when the first interest rate cut in four years will come as inflation falls.

Markets now see a 56 per cent chance of such move in June – when the European Central Bank has already signalled it will reduce borrowing costs, and a greater chance of 72 per cent of a BoE rate cut in August.

London stocks wavered this morning as investors turned cautious ahead of the Bank of England’s interest rate decision – while energy shares gave a boost to the benchmark index.

As of 7:17am, the blue-chip FTSE 100 edged up 0.1 per cent at 8,357.85, hovering below its record high of 8,365.28 points. The mid-cap FTSE 250 edged lower by 0.1 per cent.

The pound slipped against the US dollar and the UK’s benchmark 10-year gilt yield was at 4.155 per cent ahead of the decision.

Investors avoided big bets ahead of Threadneedle Street’s interest rate decision due at 11am, where the central bank is widely expected to keep borrowing costs steady.

The Bank of England will shed more light on its predictions for the economy and the path of interest rates when it publishes the latest Monetary Policy Report alongside the rates decision today.

Meanwhile, the central bank in the US, the Federal Reserve, said on Wednesday it was keeping its key interest rate at the same level and noted a “lack of further progress” towards lowering inflation.

It means rates could stay higher for longer until there is firmer evidence of price rises easing, its chairman Jerome Powell suggested.