FX.co ★ Bank Of England Keeps Rate On Hold For Fifth Time

The Bank of England has decided to maintain its key policy rate for the fifth consecutive time. During the most recent meeting, none of the Monetary Policy Committee (MPC) members advocated for an increase, due to an expected quicker-than-anticipated reduction in inflation. The committee, presided over by Governor Andrew Bailey, voted 8-1 in favor of keeping the bank rate steady at 5.25 percent.

The currently retained rate marks the highest since the start of 2008. However, Swati Dhingra argued for a decrease by a quarter point to 5.00 percent. Dhingra expressed concern that delaying rate reduction could further burden living standards and the supply capacity. Nevertheless, the MPC reassured that they are ready to modify monetary policy, based on economic data, to maintain inflation at the target level of 2 percent.

The Bank of England iterated, "…the Committee would continue to review the duration at which the Bank Rate should be kept at the present value." The MPC held its ground, asserting that a sufficiently long restrictive monetary policy is required. This decision to maintain the status quo was made after the US Federal Reserve decided to retain its policy rate on Wednesday.

Meanwhile, the Swiss National Bank startled markets earlier on Thursday by announcing an unexpected cut in interest rates by a quarter-point. Inflation in the UK has fallen to a near two-and-a-half-year low of 3.4 percent due to a decline in food price inflation.

The Bank of England anticipates Consumer Price Index (CPI) inflation to fall slightly below the 2 percent target in the second quarter of 2024, a projection slightly weaker than earlier predictions, mainly due to the fuel duty freeze outlined in the Budget. Ruth Gregory, an economist at Capital Economics, suggests that inflation will decline further and faster than what the Bank of England forecasts, which may influence the bank to modify its policy in the coming months. Gregory predicts a rate cut by the central bank in June, with a further reduction to 3.00 percent next year.