by David Milliken and Suban Abdulla

LONDON (Reuters) – The Bank of England (BoE) kept its key interest rate unchanged on Thursday at 5.25%, its highest level in 16 years, ahead of the July 4 general election, but some officials at the institute monetary issuers said their decision not to cut rates was now “finely balanced”.

The MPC, the BoE’s monetary policy committee, voted 7-2 for a status quo on rates, in line with economists’ expectations in a Reuters survey. The deputy governor of the BoE, Dave Ramsden, and Swati Dhingra, were the only officials to come out in favor of a reduction in the cost of credit, which would have reduced the main rate to 5%.

BoE Governor Andrew Bailey said in a statement accompanying the central bank’s decision that inflation falling to 2% year-on-year in May was “good news”. However, he considered a reduction in the rent of money premature.

“We need to ensure that inflation remains low and that is why we have decided to keep rates at 5.25% for the time being,” he said.

Andrew Bailey’s remarks differ from those last month, when he said he was “optimistic” that the data was heading in the right direction for a rate cut.

On the financial markets, around 11:35 GMT, the 10-year Gilt yield lost 3 basis points, to 4.04%, and the two-year yield, the most sensitive to rate expectations, fell by almost six points. base, at 4.128%.

The pound fell 0.2% to $1.2692.

The FTSE 100 index of the London Stock Exchange amplifies its gains and increases by 0.36% against an increase of 0.1% earlier Thursday.

The status quo on rates decided by the BoE contrasts with the decision of the European Central Bank (ECB) which began to reduce its borrowing costs this month. The American Federal Reserve (Fed) is not expected to reduce its rates before the end of the year, according to market projections.

Market participants said Thursday that a BoE rate cut is unlikely before September or November, although a Reuters survey of economists released last week showed most observers expect a rate cut. rate cut by the bank at its next meeting on August 1.

The prospect of a rate cut at that time would likely be too late for outgoing Prime Minister Rishi Sunak, whose Conservative Party lags the opposition Labor Party by around 20 points in opinion polls.

THE BOE INDIFFERENT TO LEGISLATIVE

The BoE indicated that the imminent legislative elections, scheduled for July 4, had no impact on its decision.

The BoE expects inflation to rise above target as the effect of past falls in energy prices fades from annual price data. The bank reiterated its May forecast that inflation was expected to be around 2.5% in the second half of this year.

In a sign that the central bank could be moving closer to cutting rates, the “minutes” of the BoE meeting show that the decision to maintain rates was “finely balanced” for some members of the monetary policy committee.

The BoE said indicators of inflation persistence – mainly wage growth and services inflation – had moderated since its May meeting, but remained elevated.

Monetary policy committee members whose views on a rate cut were “finely balanced” placed less emphasis than others on May’s higher-than-expected services inflation.

They believe this figure reflects an increase of almost 10% in the minimum wage in Britain. According to these members, it is also the result of annual price-indexed increases, factors which they believe should not have as large an upward effect on future inflation.

Other members of the MPC, on the other hand, considered a rate cut premature in view of the strong inflation in the prices of services and the acceleration of wage growth at a faster pace than predicted by economic models.

Inflation in prices of services fell at a slower pace than anticipated by the BoE at its May meeting: it stood at 5.7% instead of 5.3%, while growth in wages in the private sector is almost twice the rate that the BoE considers compatible with inflation at 2%.

(Written by David Milliken and Suban Abdulla, Claude Chendjou, edited by Bertrand Boucey and Blandine Hénault)

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