Bank of England holds interest rates steady despite inflation drop

What they're saying: "Monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably," the Bank of England said in a statement.

• "Key indicators of inflation persistence have continued to moderate, although they remain elevated," the central bank said.
• The Bank of England held its main interest rate at 5.25% for the seventh meeting in a row.

The big picture: The policy decision comes weeks before the U.K. holds a general election where inflation and cost-of-living are a key issue.

• The race could result in the end of the Conservative Party rule for the first time in over a decade.
• But the Bank of England, which previously hinted that an interest rate cut was likely soon, said the election did not factor into its decision to keep rates on hold. The panel voted 7-2 in favor of no change.
• The minutes of its policy meeting show that officials noted that the timing of the election "was not relevant to its decision at this meeting."

What to watch: Inflation in the U.K. — once the highest across rich nations — reached the 2% target faster than in Europe or the U.S.

• But inflation in the services sector, which is influenced by tight labor markets and wage pressures, came in hotter than anticipated. Officials fear that might cause inflation to rebound.
• "For some members within this group, the return of headline inflation to 2%, while welcome, was not necessarily indicative of the required sustained return to target," according to the meeting minutes.