Economic Buzz: Bank Of England keepts rates unchanged

The Bank of England kept its interest rate on Thursday after cutting it by a quarter-point last month. The Monetary Policy Committee voted 6-3 to hold the Bank Rate at 4.25%. Three members preferred to reduce the rate by 25 basis point. The central bank noted that there has been substantial disinflation over the past two years, as previous external shocks have receded, and as the restrictive stance of monetary policy has curbed second-round effects and stabilised longer-term inflation expectations. This has allowed the MPC to withdraw gradually some degree of policy restraint, while maintaining Bank Rate in restrictive territory so as to continue to squeeze out existing or emerging persistent inflationary pressures.

Underlying UK GDP growth appears to have remained weak, and the labour market has continued to loosen, leading to clearer signs that a margin of slack has opened up over time. Measures of pay growth have continued to moderate and, as in May, the Committee expects a significant slowing over the rest of the year. The Committee remains vigilant about the extent to which easing pay pressures will feed through to consumer price inflation.

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