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LONDON — The Bank of England announced on Thursday that it would maintain interest rates, as widely expected, citing the effectiveness of its current monetary policy in controlling inflation. However, it cautioned that a rate cut in June was not guaranteed.
The Monetary Policy Committee voted 7-2 in favor of holding rates, with two members advocating for a cut. This was a change from the previous meeting, where only one member supported a cut. Despite this decision, the MPC highlighted that indicators of persistent inflation remained high. In March, services inflation stood at 6%, with "upside risks" to the near-term outlook from geopolitical factors.
The bank stated it would closely monitor upcoming data releases, with two consumer price index reports expected before its next meeting on June 20. The decision maintains the BOE’s key Bank Rate at 5.25%.
BOE Governor Andrew Bailey stated, "We need more evidence of sustained low inflation before considering a rate cut," expressing optimism about the current trend.
Market expectations had suggested interest rate cuts might begin in the summer, with a 25 basis point reduction fully priced in for August and 50 basis points overall for the year. Some economists anticipated a cut in June and three or more cuts in 2024, although market pricing indicated a 45% probability of this following the meeting.
UK headline inflation is forecast to significantly decrease in April, from the current 3.2% to below the BOE’s 2% target, due to lower energy prices, according to projections.
The BOE expects UK GDP to grow by 0.4% in the first quarter and by 0.2% in the second quarter. It anticipates headline inflation to remain close to 2% in the near-term, with a slight increase later in the year as the energy market impact diminishes.
During a press conference, Bailey reiterated the MPC’s commitment to analyzing forthcoming data releases and assessing the receding risks from inflation persistence before making future decisions. He emphasized that each meeting represents a new decision, indicating that a rate cut in June is not guaranteed.
Paul Dales, chief UK economist at Capital Economics, suggested that the BOE's messaging indicated no immediate rate cut in June but signaled a willingness to change stance based on incoming data. Wage data could play a crucial role in determining whether a cut occurs in June or August.