The Bank of England's Monetary Policy Committee today left its main policy rate on hold at 5.25 percent, in line with the consensus forecast. The benchmark rate has been at this level, a 16-year high, since it was last raised by 25 basis points back in August last year.

Seven members, including Governor Andrew Bailey, voted for no change. Two members, Swati Dhingra and Dave Ramsden, voted to lower the rate by 25 basis points to 5.00 percent, as they did at the previous meeting.

Data published earlier this week showed headline CPI inflation fell from 2.3 percent in April to 2.0 percent in May, hitting the BoE's target level. In the statement accompanying today's decision, however, officials noted that they expect inflation to rise again later in the year and that key indicators of inflation persistence remain elevated.

Officials also noted that the current restrictive stance of monetary policy is weighing on activity and is loosening conditions in the labour market. Nevertheless, they stressed that their remit is always to aim to meet the inflation target while recognising that shocks and disturbances will cause inflation to depart from the two percent level.

Reflecting these considerations, the majority of MPC members concluded that rates should remain on hold today, arguing that policy should remain restrictive for as long as it takes to ensure inflation returns to the target level"sustainably in the medium term". The accompanying minutes note, however, that officials believe that the policy stance could remain restrictive even if the policy rate were to be reduced in upcoming meetings. Officials also stressed that updated forecasts in August would provide them with an opportunity to reconsider for how long policy rates should remain at their current level.

With wages stubbornly robust and the economy having moved out of recession, no action is expected for June's MPC meeting. Barring major weakness in Wednesday's CPI report, the first rate cut is generally expected to be deferred until no sooner than September which is the first meeting after August's summer break.

The Monetary Policy Committee (MPC) of the Bank of England (BoE) comprises nine experts, five of which are senior central bank executives and the other four are external members appointed by the Chancellor of the Exchequer. The MPC previously announced its monetary policy with regard to interest rates and any unconventional policy instruments every month but this was changed when the meeting schedule was truncated to eight a year in 2016. With a view to enhancing policy transparency, as of August 2015 the minutes of the MPC's deliberations, which indicate how each member voted, have been released alongside the policy announcement. Forward guidance was introduced in August 2013 but since then its framework has become increasingly qualitative and now provides only limited information about where policy might be headed.

The Bank of England determines interest rate policy at their Monetary Policy Committee meetings. These meetings currently occur during the first week of each month and are an influential event for the markets. Prior to each meeting, market participants speculate about the possibility of a change in the benchmark Bank Rate or unconventional monetary instruments. The MPC may or may not issue a post-meeting statement explaining its decisions in addition to the discussion’s minutes which, since August 2015, have been released alongside the policy announcement. If the outcome is different from expectations, the impact on the markets can be dramatic and far-reaching. In the middle month of each quarter, the Bank publishes its Inflation Report, which provides a detailed analysis of economic conditions and the prospects for economic growth and inflation agreed by the MPC. This is now made available at the same time as the policy announcement and release of the minutes.

The Bank's monetary policy objective is to deliver price stability - low inflation - and, subject to that, to support the Government's economic objectives including those for growth and employment. A remit announced by the Chancellor in March 2013 hinted that the real economy may have a larger say in policy decisions going forward. Price stability is defined by the Government's medium-term inflation target of 2 percent, as measured by the annual change in the consumer price index. The foundation of the Bank's policy is the recognition of role of price stability in achieving economic stability more generally, and in providing the right conditions for sustainable growth in output and employment. The Government's inflation target is announced each year by the Chancellor of the Exchequer in the annual Budget statement.

As in the United States, market participants speculate about the possibility of an interest rate change at these meetings. If the outcome is different from expectations, the impact on British markets - and to some extent those in Europe - can be dramatic and far-reaching. The interest rate set by the Bank of England, serves as a benchmark for all other rates. A change in the rate translates directly through to all other interest rates from gilts (fixed interest government securities named after the paper on which they were once printed) to mortgage loans.

The Bank of England sets an interest rate (Bank Rate) at which it lends to financial institutions. This interest rate then affects the whole range of interest rates set by commercial banks, building societies and other institutions for their own savers and borrowers. It also tends to affect the price of financial assets, such as bonds and shares, and the exchange rate, which affect consumer and business demand in a variety of ways. Lowering or raising interest rates affects spending in the economy.

The level of interest rates affects the economy. Higher interest rates tend to slow economic activity; lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, few homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the financial markets, while lower interest rates are bullish.