The Bank of England may delay cutting interest rates during the campaign season, experts have suggested.
The Prime Minister has suggested that the next general election will take place this year, or early 2025.
The campaign season officially starts when the general election has been announced and many are wondering if the Bank of England will start to cut rates during this time.
The first Monetary Policy Committee meeting of 2024 is being held on Thursday, and few expect there will be any changes from the current rate of 5.25 percent.
Even though inflation has fallen to four percent, interest rates are not expected to fall so fast. The Bank will be watching other measures of underlying inflation, such as core inflation which strips out the impact of food and energy prices to make their decision.
Michael Saunders, who sat on the MPC between 2016 and 2022, told i the MPC “may be reluctant to make the first cut during the actual formal election campaign period.”
He said the exact decision would depend on what markets were expecting at the time, but that the MPC’s aim would be “to avoid doing anything surprising or newsworthy, as far as possible, during the formal campaign period.”
A second ex-MPC member, Charles Goodhart, said he agreed that the MPC may delay a first cut.
An election would probably take place 25 days after being called by the Government. As the Bank of England vote on interest rates every six weeks, there is a good chance that a rate cut meeting takes place during a formal campaigning period.
Mr Saunders said that if the Bank had already started cutting rates by the time the campaign period started, it would not need to stop doing so, saying the situation “only applies to a first rate cut.”
Chris Martin, a macroeconomics professor at the University of Bath, also agreed that a general election would have an impact on whether the Bank of England would cut rates.
He said with a general election on the horizon, the decision over whether to cut was “becoming even more political than normal” as the Bank has never had to start the cycle of hiking or cutting rates during a General Election campaign.
Professor Martin explained that the Bank would want to see what the new government or administration would do first before making any change.
However, another ex-MPC member, Willem Buiter, who sat on the committee between 1997 and 2000 said that he did not think the Bank would hesitate to cut rates during a campaigning period.
He added: “The MPC I know would not have let its interest rate decisions be influenced by the proximity of an election. Neither the monetary policy mandate nor the financial stability mandate are subject to electoral considerations.”
