The Bank of England (BoE) is set to leave interest rates unchanged – if only because of the UK general elections on July 4. Nevertheless, comments about the latest economic developments are set to rock the Pound.
Why the Bank of England decision matters
The Bank of England has influence beyond the UK’s borders. As one of the oldest central banks in a country that trades with the entire world, changes in interest rates impact the Pound, the Euro, and even the US Dollar.
The “Old Lady,” as the BoE is also known, has been holding interest rates at 5.25% for long months, waiting to be convinced that inflation is falling. In its latest meeting in May, two members of the Monetary Policy Committee (MPC) voted in favor of cutting rates. Still, seven others, including Governor Andrew Bailey, opted to hold them unchanged.
An interest rate cut in the Eurozone and an increase in the unemployment rate to 4.4% in April support easier monetary policy, while a small rise in an elevated core Consumer Price Index (core CPI) of 3.5% in May is a source of caution. Headline CPI stood at 2% last month, at the BoE’s 2% target.
Then came the decision about a snap election in the UK on July 4, which caused policymakers to suspend all public appearances. Due to the upcoming elections, another no-change decision is widely expected.
Nevertheless, the Meeting Minutes from the decision will show the bank’s views on recent economic developments and may provide a clue about the probability of a rate cut in August. There is a high probability that all members will vote to hold – only due to the elections – but the text is critical to understanding the BoE’s thinking. GBP/USD is set to rock.