The Bank of England has held interest rates at 5.25% for the seventh consecutive time in what it described as a “finely balanced” decision.

Dashing Rishi Sunak’s hopes of a pre-election cut in the cost of borrowing, a majority of the Bank’s monetary policy committee (MPC) said they wanted to see further evidence that price growth would remain subdued.

Financial markets expected the decision, despite a fall in inflation in May to the Bank’s 2% target.

Andrew Bailey, the Bank’s governor, said: “It’s good news that inflation has returned to our 2% target. We need to be sure that inflation will stay low and that’s why we’ve decided to hold rates at 5.25% for now.”

Bailey was among seven of the nine-member MPC who voted to leave rates on hold. Swati Dhingra and Dave Ramsden voted for a quarter-point cut to 5%.

However, for some of those who voted to freeze rates, the decision was “finely balanced”, according to the minutes of the MPC meeting, suggesting a potential cut had been a serious consideration.

Ruth Gregory, the deputy chief UK economist at the consultancy Capital Economics, said the Bank had “left the door open” to a rate cut in August. She said the minutes of the MPC meeting showed policymakers wanted to ensure inflationary pressures were receding.

“We would interpret [these words] as a sign the Bank is willing to cut rates in August, if the data evolves as it expects,” she said.

James Smith, a developed-markets economist at ING, said: “Assuming the next inflation report in mid-July doesn’t contain any nasty surprises, the Bank will vote for a rate cut in August.”

Savers will cheer the freeze, but many mortgage payers and indebted small businesses will need to take out loans at historically high levels of interest.

Millions of homeowners have been forced to refinance their loans at much higher interest rates in the past 18 months, leading to a collective bill that is likely to reach £12bn by the end of the year, according to the Resolution Foundation thinktank.

David Bharier, the head of research at the British Chambers of Commerce, said a cautious approach by the Bank was preventing business investment.

“Rate cuts, when they come, will provide welcome breathing space for the companies we represent across the UK. Our research shows that while business concern about the cost of borrowing has been easing, it remains at historically high levels. Many firms have told us they have been put off from investing due to high borrowing costs, and this has no doubt been a drag on overall economic growth.”

The Bank said its own survey of investors showed only 50% believed there would be a cut at the MPC’s meeting in August. Three-quarters of respondents to the survey said they expected a cut in September.

Despite the fall in headline inflation to 2% in May, services inflation was 5.7%, down only slightly from 5.9% in April.

In the minutes of the MPC meeting, members said the economy had grown faster than they expected earlier this year, and was likely to continue doing so. Bank staff predict GDP growth of 0.5% in the second quarter of 2024, stronger than the 0.2% rate expected at the time of the last rates decision in May.

It said some of the growth in the first quarter was accounted for by an increase in government spending, leading to a stronger bounce-back from last year’s recession.

MPC members were concerned that wages were not falling fast enough to prevent companies from putting up prices again. A forecast rise in energy prices in autumn could also push inflation higher again.