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Failure to cut interest rates is ‘disappointing,’ says IEA economics expert

Julian Jessop, Economics Fellow at the free market think tank, the Institute of Economic Affairs, commented on the Bank of England’s decision to hold interest rates at 5.25%

“The Monetary Policy Committee’s decision to leave interest rates on hold was disappointing but unsurprising. However, there were some welcome hints that cuts are coming soon.

“For a start, the two members who had still been voting for another hike both switched to no change. The debate is now about when rates will be cut, not if.

“The accompanying statement also suggested that the MPC is becoming more confident that underlying inflation pressures are fading. Eight of the nine members still need more evidence before joining Swati Dhingra in voting for a cut, but this data is piling up.

“The big picture is still that monetary policy is too tight and the Bank has been too slow to cut rates. Nonetheless, the shift in tone today is important.

“The cost of borrowing typically depends on where the markets think official interest rates are heading, not just on where they happen to be now. Investors have already responded to today’s statement by bringing forward their expectations for the timing of the first cut, which should provide some relief to mortgage payers.”

Notes to Editors

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The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems. The IEA is a registered educational charity and independent of all political parties.

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