The Bank of England is expected to maintain interest rates despite U.K. inflation reaching the 2% target for the first time in nearly three years. This milestone, largely driven by a drop in energy prices, hasn't shifted market expectations of a rate cut. Traders now see only a 5% chance of a cut at the BOE's upcoming meeting, with a 30% chance by August. Core inflation remains high at 3.5%, with services inflation at 5.7%. Wage growth, excluding bonuses, held at 6% in June, indicating persistent domestic price pressures. While the BOE finds recent inflation readings "encouraging," it remains cautious, with future rate decisions closely tied to upcoming data. Political factors, including an imminent general election, add to the uncertainty. Two members of the Monetary Policy Committee previously voted for a rate cut, but a broader consensus is needed for any change. The European Central Bank's recent rate cuts contrast with the BOE's current stance.
