The Bank of England has held interest rates at their highest level since 2008, despite UK inflation returning to its official 2% target last month.
The Bank’s governor, Andrew Bailey, said policymakers “need to be sure that inflation will stay low and that’s why we’ve decided to hold rates at 5.25% for now”.
The decision comes a day after official figures showed the rate of inflation hit the Bank’s 2% target in May for the first time in nearly three years, prompting the Prime Minister to declare “we’ve got there” after the milestone was reached.
However, some policymakers on the Bank’s nine-person Monetary Policy Committee (MPC) felt that “more evidence of diminishing inflation persistence was needed” before they could safely cut rates.
In particular, they felt that services inflation – which looks only at service-related prices such as hospitality and culture – had remained stubborn, and wage growth was rising faster than forecast.
But two members of the committee – Swati Dhingra and Dave Ramsden – voted for a reduction again as they argued that inflation looks set to remain at normal levels.
Furthermore, a summary of the MPC’s meeting revealed that, for other members, the policy decision was “finely balanced” because they felt services inflation was putting less pressure on the overall rate.
It indicates that the policymakers were somewhat split on the economic data.
“As part of the August forecast round, members of the committee will consider all the information available and how this affects the assessment that the risks of inflation persistence are receding,” the MPC summary read.
Meanwhile, the latest decision comes two weeks before the UK holds its General Election, but policymakers stressed that the timing of the election was “not relevant to its decision” on rates.
Chancellor Jeremy Hunt said on Wednesday that he was hoping mortgage costs would start to come down soon.