Bank of England told to keep rates at 5.25%, Says policymaker.

Despite the forecasts from the city suggesting rate cuts in August, Jonathan Haskel, a senior policy maker at the Bank of England, has cautioned against lowering rates, arguing that the UK's struggle with inflation is ongoing.

Haskel stressed the significance of keeping rates unchanged until there is greater certainty that the underlying inflationary pressures have truly diminished. Speaking at Kings College, London, he noted "encouraging signs" in the UK's anti-inflation efforts, pointing out the achievement of the Government's 2% target in May of this year. Nevertheless, Haskel expressed doubts about the sustainability of this progress, particularly pointing out the inflation rate's susceptibility to increase again due to a tight labor market.

He further explained that the unfolding of these shocks throughout the economy, along with the persistent tight and impaired labor market, implies that inflation will stay above target for a considerable period.

Despite the preference of analysts and observers for rate cuts in August, which would signify the first reduction since the COVID-19 pandemic, Haskel's cautious position goes against this anticipation. Notably, in October 2022, UK inflation reached 11.2%, largely driven by COVID-related expenditures and the geopolitical tensions impacting energy prices in Europe due to the conflict in Ukraine.

Prior to his recent departure, Rishi Sunak had hinted at potential rate cuts during his campaign, connecting a vote for the Tories with the pledge of lower interest rates for the public.

Nevertheless, the Bank of England remains firm in its dedication to maintaining low inflation, holding the interest rate steady at 5.25%. In a comparative perspective, the Euro area has already started implementing rate cuts, reducing their rate from 4.5% to 4.25%, showcasing distinct approaches to monetary policy in response to economic circumstances.