Bank Of England Moves Closer To Rate Cut
The Bank of England left its key policy rate unchanged for the sixth consecutive meeting and signaled that the first rate cut since 2020 is on the horizon.
The Monetary Policy Committee decided to hold the Bank Rate at 5.25 percent again in a split vote. The current bank rate is the highest since early 2008.
While seven members judged that maintaining the rate at the current level was warranted, Swati Dhingra and Dave Ramsden sought a quarter-point reduction at the meeting.
Dhingra and Ramsden said the Bank Rate needed to become less restrictive to enable a smooth and gradual transition in the policy stance, and to account for lags in transmission.
“The MPC remained prepared to adjust monetary policy as warranted by economic data to return inflation to the 2% target sustainably,” the bank said.
“The Committee will consider forthcoming data releases and how these inform the assessment that the risks from inflation persistence are receding,” the bank added.
At the press conference, BoE Chief Andrew Bailey said a rate cut in June is neither “ruled out or planned”.
Capital Economics’ economist Paul Dales said some soft inflation and wages data may be enough to prompt it to cut rates at the next meeting in June, if not at the following meeting in August.
ING economist James Smith said the bank is inching towards a rate cut but it is keeping its options open. “The June vs August debate will be largely resolved when we get those April inflation figures in a couple of weeks’ time,” the economist added.
“For now, we’re sticking with August as our base case,” said Smith.
The bank forecast the economy to grow only 0.2 percent in the second quarter after an estimated 0.4 percent growth in the first quarter.
Consumer price inflation is expected to return to close to the target in the near term, but to increase slightly in the second half of this year, to around 2.5 percent due to the unwinding of energy-related base effects. Inflation is projected to be 1.9 percent in two years’ time and 1.6 percent in three years.
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