Bank accused of ‘political decision’ to hold interest rates

The Bank of England has left interest rates unchanged for the seventh straight meeting - NEIL HALL/EPA-EFE/Shutterstock
Tim Wallace
55 min read

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The Bank of England has been accused of making a “political decision” after holding interest rates at a 16-year high despite inflation falling to its target.

Conservative MPs accused officials on the Monetary Policy Committee (MPC) of being unfairly and unduly swayed by the upcoming election.

Rishi Sunak’s last hope of a cut to borrowing costs before the general election was dashed on Thursday after the MPC voted to keep interest rates at 5.25pc.

The decision to maintain borrowing costs at the same level for the seventh consecutive meeting came despite inflation falling back to the Bank’s 2pc target this week.

Sir Jacob Rees-Mogg, a former business secretary, said: “It is a political decision by the Bank of England. Inflation is now on target and rates need to be cut.

“That we are in an election period ought to make no difference but the Bank has made a decision based on short-term politics rather than economics.”

The minutes of the MPC’s latest meeting said the election “was not relevant” to the decision to hold interest rates unchanged.

“The committee noted that the timing of the general election on 4 July was not relevant to its decision at this meeting, which would as usual be made on the basis of what was judged necessary to achieve the 2pc inflation target sustainably in the medium term,” the minutes said.

However, Bob Blackman, a senior Conservative standing for re-election, said: “You’ve got to ask the question why they are not cutting. They have got to justify the decision not to cut interest rates.”

Danny Kruger, a Conservative MP and former member of the Treasury select committee, said the Bank had held rates too high for too long. He said: “Rates should have come down at the last meeting and it’s a great shame the MPC are holding off yet again.

“Inflation is now back to target and businesses and mortgage holders badly need a rate cut to get the economy growing again.”

Andrew Bailey, the Bank’s Governor, said borrowing costs needed to stay higher for longer to squeeze lingering price pressures out of the economy. While headline inflation has fallen back to target, prices in the dominant services sector are still rising faster than officials would like.

Mr Bailey said: “It’s good news that inflation has returned to our 2pc target. We need to be sure that inflation will stay low and that’s why we’ve decided to hold rates at 5.25pc for now.”

The Bank’s decision also faced criticism from the Left. George Dibb, an economist at the Left-leaning think tank the Institute for Public Policy Research, said high rates were holding back the economy.

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