KPMG UK comments on today’s Bank of England rate decision

"The Bank of England opted to keep interest rates unchanged as the backdrop of elevated domestic price pressures was enough to prevent a majority of the MPC voting for a cut. The recent rally in energy prices driven by an escalation in geopolitical tensions in the Middle East have also added a further upside risk to the inflation outlook.

“The impact of April’s increase in labour costs represented a key source of uncertainty for the Bank of England. Nonetheless, early indications suggest underlying inflation has softened, while pay growth has undershot the Bank’s May forecast. With the labour market set to weaken further over the coming months, we expect domestic price pressures to moderate, providing the Bank with more room to cut rates in the second half of the year.

"The MPC continued to opt for a gradual approach, despite an additional MPC member joining the more dovish camp. While the data flow over the past month has trended in the right direction, it was not enough to warrant the MPC deviating away from the current quarterly pace of cuts. We anticipate further progress on underlying inflation and wage pressures over the coming months, that should allow a majority of MPC members to vote for a cut in the upcoming August meeting. Beyond that, a further cut is expected in November, taking interest rates down to 3.75% by the end of this year.”