The Bank of England is inching closer to a rate cut, potentially this summer, as it anticipates inflation to fall below target. The bank's key 海角视频 interest rate has been maintained at a 16-year high of 5.25%, but there are hints that a reduction could be imminent.
In a statement released on Thursday, the nine-member Monetary Policy Committee voted 7-2 to keep rates unchanged, with two members advocating for a quarter-point reduction. This is an increase from the previous vote where only one member supported a cut.
Echoing the US Federal Reserve's decision last week to hold rates, the majority of the panel is seeking further evidence that inflation is under control.
READ MORE: {}
The growing number of committee members supporting a 海角视频 rate reduction signals a shift towards favouring cuts.
"We've had encouraging news on inflation and we think it will fall close to our 2% target in the next couple of months," said Bank Governor Andrew Bailey. "We need to see more evidence that inflation will stay low before we can cut interest rates. I'm optimistic that things are moving in the right direction."
Bailey also suggested that financial markets are more pessimistic about the trajectory of interest rates, stating that "it is likely that we'll need to cut bank rates in the coming quarters, possibly more so than is currently priced into markets."
However, he stated that a cut at the next meeting in June has "not been ruled out" but emphasised that it was "not a fait accompli."
The 海角视频's headline inflation is currently at an annual rate of 3.2%, its lowest level in two and a half years, yet it still exceeds the bank's 2% target.
Most Read
In its decision-related forecasts, the Bank of England anticipates inflation to dip below the target between April and June, but then rebound to 2.6% in the second half of this year as the effect of recent energy price reductions diminishes.
Looking further ahead, the bank predicts inflation to decrease more than previously estimated over the forthcoming years to 1.5% in 2026. Given that it sets policy to target inflation months and years in advance, this suggests that rates may be cut soon.
This perspective was reflected in financial markets, where the British pound depreciated against other currencies. For instance, it dropped 0.4% against the dollar to $1.2450 immediately following the decision as traders factored in the likelihood of lower returns on holding pounds.
Like the US Fed and other global central banks, the Bank of England significantly increased interest rates from near zero in late 2021 to counteract price rises initially triggered by supply chain issues during the coronavirus pandemic and subsequently by Russia's invasion of Ukraine.
Higher interest rates, which temper the economy by making borrowing more costly, have contributed to easing inflation. However, they have also burdened the barely growing British economy.
Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales, said: "The decision to keep interest rates on hold, while expected, is a missed opportunity to provide much needed relief for those people struggling with their mortgage bills and businesses facing numerous cost pressures."
BI deputy chief economist Anna Leach said:“The vote 7-2 to hold rates is in line with the CBI’s expectation that the MPC want to see more evidence that past falls in domestic inflationary pressure are sustainable before they’ll move to cut rates. Services inflation and wages data both suggest a cautious approach is warranted. Inflation in the services sector is triple the inflation target and average earnings growth is still running at around double the rate consistent with the inflation target.
“With the economy appearing to be moving out of recession – albeit anaemically – there is a delicate balance to be struck between managing inflationary pressures and not snuffing out a nascent recovery. It is noteworthy that the Bank judge that demand growth is going to run behind supply growth over the next couple of years. Overall, this release does not change our view that the first rate cut is most likely to be in August.”