The Bank of England was set Thursday to keep its main interest rate at a 16-year high, resisting a cut as UK inflation cools at a slower pace than forecast.“The market is expecting the first rate cut from the BoE between June and August,” noted Kathleen Brooks, research director at XTB trading group.Expectations of UK rate cuts this summer have weighed on the pound, boosting share prices of British exporters and London-listed multinationals, pushing the capital’s benchmark FTSE 100 stocks index to record highs in recent weeks.
Despite the upbeat sentiment, a leading international organisation last week said that the UK would expand by only 0.4 percent this year because of the inflation situation and stubbornly-high interest rates.
The Organisation for Economic Cooperation and Development (OECD) projected also that the UK would perform worst among the Group of Seven major economies next year.
Britain may have new leadership by then, with polls widely indicating that the main opposition Labour party is on course to win an upcoming general election after 14 years of rule by the Conservatives, currently led by Prime Minister Rishi Sunak.
Boosting the Tories, however, could be data due Friday that is expected to show the UK economy grew in the first quarter, ending a short-lived recession.
At 5.25 percent, the BoE’s main interest rate is at the highest level since February 2008, handing a boost to savers.
The BoE hiked borrowing costs 14 times between late 2021 — when they stood at a record-low 0.1 percent — and the second half of last year, with supply-chain disruptions following Covid lockdowns also proving inflationary.
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