The Bank of England (BoE) indicated it may cut interest rates in August, marking the first reduction over four years. On Thursday, the Bank decided to keep interest rates at a 16-year high of 5.25% in a closely contested vote.
Recent data showed inflation slowing to 2% in May, aligning with the Bank's target, though some prices continue to rise faster than expected. This suggests a rate cut could be likely at the next meeting once the Bank updates its economic forecasts.
The rate-setting committee voted 7-2 to maintain rates, but the decision was more contested than previous ones. Three members, including Governor Andrew Bailey, found the choice to hold rates "finely balanced" and downplayed the strength of underlying inflationary pressures.
This decision comes ahead of the general election, where UK economic policy is a key issue. However, the Bank emphasised that the election timing did not influence its decision.
The BoE's interest rate affects mortgage, credit card, and savings rates for millions in the UK. Although the Bank hinted at an August rate cut, many homeowners ending fixed-rate deals face higher mortgage rates than they are used to. The current average rate for a two-year fixed deal is 5.96%, lower than last year's peak of 6.86%.
The Bank's recent decision hints at a potential rate cut in August, which would impact borrowing costs and reflect evolving inflation trends amid the backdrop of the upcoming general election.
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