The Bank of England has maintained its key policy rate at 5.25 percent for the sixth consecutive meeting, indicating that it is likely to implement its first rate cut since 2020. This current bank rate, a high since early 2008, was determined via a split vote from the Monetary Policy Committee (MPC).
While the majority of the committee's members, seven out of nine, perceived the preservation of the current rate as warranted, two members, Swati Dhingra and Dave Ramsden, proposed a quarter-point reduction. Dhingra and Ramsden argued that a less restrictive Bank Rate is necessary to facilitate a gradual policy stance transition while also taking into account transmission lags.
The bank mentioned that the MPC remains willing to modify the monetary policy to sustainably return inflation to the 2% target, based on economic data. It plans to monitor upcoming data and evaluate how it informs the assessment of receding inflation persistence risks. At a press conference, the BoE Chief Andrew Bailey made clear that a June rate cut is neither ruled out nor predetermined.
Economist Paul Dales from Capital Economics suggested that slight softening in inflation and wages data might push the bank to lower rates by the following meeting in August, if not the next one in June. ING economist James Smith pointed out that the bank is slowly moving towards a rate cut while keeping its options open. He stated that the debate on a rate cut in June versus August would mostly be resolved following the release of April inflation figures in the coming weeks. As of now, August is his base case for the rate cut.
In terms of economic growth, the bank projected a growth rate of just 0.2 percent for the second quarter, a decrease from the estimated 0.4 percent growth in the first quarter. Consumer price inflation is anticipated to closely return to the target in the short term but is predicted to slightly rise to about 2.5 percent in the latter part of the year due to reversing energy-related base effects. The bank expects inflation to stand at 1.9 percent in two years and 1.6 percent in three years.
