Bank of England Signals Possible Interest Rate Cut in August

The Bank of England has indicated a potential interest rate cut in August, which would mark the first reduction in borrowing costs in over four years. On Thursday, the Bank decided to maintain the interest rate at a 16-year high of 5.25% in a closely contested vote.

Recent data showed inflation in May slowed to 2%, aligning with the Bank’s target, though some prices continued to rise faster than anticipated. The minutes from the Bank’s rate-setting committee meeting suggest a significant shift in sentiment, hinting that a majority might support a rate cut in the next meeting on 1 August.

The committee emphasised they would assess whether areas of concern are “receding” and will keep under review the duration for which the current bank rate should be maintained. This language signals to markets and the public that a rate cut is now a likely outcome at the next meeting.

The decision to hold rates was passed by a 7-2 vote, but it was more contentious than previous decisions. For three members, the choice to maintain the rate this month was “finely balanced.” Those favouring a cut, including Bank of England Governor Andrew Bailey, are minimising the strength of underlying inflationary pressures.

This development comes ahead of the general election, where economic policies are a major point of contention for political parties. However, the Bank emphasised that the timing of the election does not influence its decisions.