The Bank of England has left interest rates on hold at 4.25% as it awaits further evidence that inflation is under control before cutting borrowing costs further.
The Bank’s nine-member monetary policy committee (MPC) is taking what it calls a “gradual and careful” approach to reducing rates, making four quarter-point cuts since last August.
The MPC expects inflation to rise temporarily in the coming months as a result of higher energy prices, and then to fall back later in 2025, as wage growth weakens.
But the Bank’s governor, Andrew Bailey, has warned that Donald Trump’s tariff war makes the outlook for inflation and interest rates more ambiguous, telling MPs this month: “The path remains downwards, but how far and how quickly is now shrouded in a lot more uncertainty, frankly.”
Since the MPC’s last meeting, the escalating conflict between Israel and Iran has also raised concerns about the future path of oil prices.
UK inflation edged down to 3.4% in May, from 3.5% in April, according to official figures published on Wednesday, reflecting falls in air fares and petrol.
But the cost of food showed a marked increase – including a record rise in chocolate prices, as a result of poor harvests in key producer countries.
The chancellor, Rachel Reeves, has sought to take some of the credit for the Bank’s rate cuts since Labour came to power last summer – suggesting her prudent fiscal policy has allowed it to act.
Labour will be hoping for further rate cuts later in the year, to lower the cost of borrowing for companies and help to kickstart economic growth.
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