Bank Of England Hints At Rate Cut

(RTTNews) - The Bank of England opened the door for interest rate cuts this year after holding the policy rate steady for four straight meetings, and lowered its inflation projections.

The Monetary Policy Committee, led by Governor Andrew Bailey, decided in a 6-3 split vote to keep the bank rate at a 15-year high of 5.25 percent, as expected.

Interest rates have now peaked and markets are pricing in a rate cut as early as June.

The BoE dropped the wordings related to further tightening in the latest policy statement.

Six MPC members said that maintaining the current rate was warranted at this meeting.

Headline inflation eased sharply and the restrictive stance of policy was weighing on activity and leading to a looser labor market.

The risks to inflation were more balanced, they noted.

Although services price inflation and wage growth dropped somewhat more than expected, key indicators of inflation persistence remained elevated, the majority in MPC said.

"…the Committee will keep under review for how long Bank Rate should be maintained at its current level," the bank said.

Jonathan Haskel and Catherine Mann preferred a 25 basis points increase to 5.50 percent, while Swati Dhingra sought a quarter point reduction.

Haskel and Mann observed that an increase in the interest rate was necessary to address the risks of more deeply embedded inflation persistence and to return inflation to target sustainably in the medium term.

Meanwhile, Dhingra said the bank rate needed to become less restrictive now.

Inflation is forecast to fall temporarily to the 2 percent target in the second quarter before rising again in the third quarter and the fourth quarter.

Price growth is projected to be 2.3 percent in two years' time and 1.9 percent in three years.

GDP is forecast to expand 0.1 percent in the first quarter of 2024 and at a similar pace over the coming few quarters.

These were slightly stronger than expected in the November Report largely due to the waning drag on growth from past interest rate hikes.

Capital Economics' economist Paul Dales said a rate cut in June is still possible and rates are likely to end 2025 at 3.00 percent.

The BoE will have enough information this summer to start an easing cycle in August, ING economists said.

This was slightly later than the market and the Bank's survey respondents, who favor June as the start of the easing cycle.