Recent data indicates that the Bank of England is unlikely to lower its main interest rate from the current 16-year high of 5.25% despite the UK's inflation dropping to the target rate for the first time in almost three years. The consumer prices index revealed a decrease to 2% in the year leading up to May, down from 2.3% in the previous month, with food prices playing a significant role in this decline. This marks the first instance since July 2021 that inflation has aligned with the bank's target.
However, concerns persist among some members of the bank's Monetary Policy Committee regarding the notable price hikes in the services sector and the rapid pace of wage growth. These factors heighten the risk of a potential inflation resurgence if interest rates are reduced prematurely. As a result, experts like Luke Bartholomew, deputy chief economist at abrdn, believe that an interest rate cut on Thursday remains highly improbable. Instead, there is growing speculation that the Bank may outline a plan for a rate cut in August.
Prime Minister Rishi Sunak's decision to call for an early election on July 4 was influenced by the perceived stability in the economic landscape. However, recent opinion polls suggest minimal shifts in voter preferences over the past month. The Labour Party, led by Keir Starmer, is widely anticipated to secure power, potentially marking their return to governance for the first time since 2010.
