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Published: 21/06/2024
The Bank of England’s Monetary Policy Committee (MPC) voted by a majority (7-2) to maintain the base rate at 5.25% at its June meeting.
Two members of the committee voted for the rate to be decreased to 5%.
In setting out the context to the vote, the MPC said: ‘The Committee has judged since last autumn that monetary policy needs to be restrictive for an extended period of time until the risk of inflation becoming embedded above the 2% target dissipates.’
In setting out the context to the vote, the MPC reflected on monthly GDP being unchanged in April, which had been more positive than was forecast, but noted this was despite, rather than because of, construction’s contribution to output, which fell again.
The committee also noted that while housing investment had increased in the first quarter of 2024, particularly in private housing repair and maintenance work, the monthly data for April showed a return to decreased output, which was attributed partially to adverse weather conditions.
Dr David Crosthwaite, Chief Economist at BCIS, said: ‘There’s no real surprise that the Bank of England has decided to leave the base rate unchanged again. There were hints at the last MPC meeting that they needed to see a sustained fall in inflation, and yesterday’s target-reaching CPI numbers were obviously not enough.
‘While disappointing for borrowers everywhere, it’s particularly unhelpful for the construction sector, which shows clear signs of recession as demand softens and the effects of monetary tightening continue.
‘The impact of high borrowing costs is having a significant effect on the viability and affordability of projects. Even when interest rates start to come down, it’s going to take time to see it filter through to increased activity. As long as the cost of borrowing remains elevated, construction output is likely to suffer continuing declines.’
The MPC’s next vote will be published on 1 August 2024.
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