Bank of England Holds Rates Amid Debate on June Cut
The Bank of England (BOE) held interest rates steady at 5.25% on Thursday, as members debated the timing of a potential rate cut amid signs that inflation is starting to ease.
Services inflation remained high at 6% in March, but indicators of inflation persistence have begun to recede. The BOE expects the U.K.'s gross domestic product (GDP) to grow by 0.4% in the first quarter and 0.2% in the second quarter, with headline inflation forecasted to drop below its 2% target later this year.
Bank of England Governor Andrew Bailey emphasized that any decision on rate cuts would depend on upcoming data releases, particularly consumer price index prints due before the next meeting on June 20. He also noted that wage data may influence whether a cut falls in June or August.
Deputy Governor Dave Ramsden and external member Swati Dhingra called for an immediate rate cut during the Monetary Policy Committee (MPC) meeting, but they were outvoted by the other seven members. Bailey reiterated that the MPC would consider forthcoming data releases carefully before making a decision.
Market anticipation has been building for interest rate cuts to begin in the summer, with money markets fully pricing in a 25 basis point reduction in August and 50 basis points overall this year. However, some economists see a cut as early as June and three or more cuts throughout 2024.
The BOE's decision to hold rates was widely expected, but the debate on rate cuts highlights the uncertainty surrounding the economic outlook. The central bank will closely monitor upcoming data releases to determine its next move.
