San Francisco Frontiers - Bank of England freezes rate before UK election

While UK inflation slowed in May to a near three-year low of 2.0 percent, matching the central bank's target, the BoE had been expected to keep the rate at 5.25 percent ahead of the national vote on July 4.

"It's good news that inflation has returned to... target," Bank of England governor Andrew Bailey said following the regular policy meeting.

"We need to be sure that inflation will stay low and that's why we've decided to hold rates at 5.25 percent for now."

Ahead of the announcement, the Swiss National Bank unveiled a second straight interest-rate cut, after becoming in March the first Western central bank to slash borrowing costs that had been raised to battle inflation. Norway froze rates Thursday.

Analysts had widely expected no change to the BoE rate owing to UK services inflation remaining well above two percent and with energy bills set to rise towards the end of the year.

They had added that the UK central bank would have wanted to avoid making a decision that could have been perceived as taking sides during a high-profile election campaign.

- 'Election not relevant' -

However, the BoE stressed that its latest decision was in no way influenced by politics.

The Monetary Policy Committee "noted that the timing of the general election... was not relevant to its decision", said minutes of the meeting.

The BoE's main role is to keep the UK annual inflation rate close to two percent.

Having hit the target last month, according to official data Wednesday, analysts argued that the news had handed a much-needed boost to embattled Prime Minister Rishi Sunak.

They added, however, that the inflation slowdown was unlikely to prevent his Conservatives from losing the election to the main opposition Labour party.

Keir Starmer's Labour has consistently led the Conservatives by around 20 points in opinion polls for nearly two years.

Elevated interest rates have worsened a UK cost-of-living squeeze because they increase borrowing repayments, thereby cutting disposable incomes and crimping economic activity.

The BoE began a series of rate hikes in late 2021 to combat inflation, which rose after countries emerged from Covid lockdowns and accelerated after the invasion of Ukraine by key oil and gas producer Russia.

After peaking at 11.1 percent in October 2022, consumer price growth has cooled following a series of interest-rate hikes by the UK central bank.

Britain's economy, however, stagnated in April after emerging from recession in the first quarter of the year, as businesses and households weathered the cost-of-living crunch.

BoE policy on rates mirrors that of the US Federal Reserve, which says it is not yet ready to cut.

It contrasts, however, with the European Central Bank and other central banks that have started to reduce borrowing costs.

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B.Ramirez--SFF