United Kingdom Interest Rate

The Bank of England maintained the Bank Rate at 5.25% during its March meeting, its highest level since 2008, as policymakers awaited clearer signals indicating that the country's persistent inflationary pressures had subsided. The Monetary Policy Committee voted by a 8-1 margin in favor of keeping rates unchanged, with one member advocating for a 25 basis point decrease. This decision deviated from market expectations, which had pointed to a slightly more hawkish 7-2 vote, with one member advocating for the cut and another member advocating for a hike. The announcement came a day after data revealed that the country's CPI rate had dropped to 3.4%, its lowest level in almost two-and-a-half years. Governor Bailey expressed optimism about Britain's economic trajectory, suggesting that conditions were favorable for the central bank to begin reducing interest rates, but stressed the necessity for greater certainty regarding the economy's control over price pressures.

The Bank of England is widely anticipated to maintain the Bank Rate at 5.25% on Thursday, its highest level since 2008, as it awaits clearer signals that the country's persistent inflationary pressures have abated. Traders' attention will be centered on the voting split and the accompanying statement, with expectations leaning towards a slightly more dovish voting split of 1-7-1 (cut-unchanged-hike) compared to the previous 1-6-2 split, following a lower-than-anticipated inflation rate reported for February. The country's CPI rate dipped to 3.4%, its lowest level in almost two-and-a-half years but still substantially exceeding policymakers' 2.0% target. Moreover, wage growth continued its normalization trajectory, and the labor market exhibited signs of gradual cooling. Currently, most investors anticipate that the BoE will initiate rate cuts for the first time in August, while market expectations already factor in roughly a 60% likelihood of rate cuts by the central bank in June.

The Bank of England kept the key Bank Rate unchanged at a 16-year high of 5.25% for the fourth consecutive time during its first meeting of 2024, in line with market expectations. However, two policymakers preferred to increase it by 25bps while one member preferred to reduce it by 25bps. The central bank said monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, but dropped a reference to further tightening and acknowledged that the risks to inflation are more balanced. Still, key indicators of inflation persistence remain elevated although services inflation and wage growth have fallen by somewhat more than expected. Policymakers expect GDP growth to pick up gradually during the forecast period, in large part reflecting a waning drag on the rate of growth from past increases in Bank Rate. CPI inflation is projected to fall temporarily to the 2% target in Q2 2024 before increasing again in Q3 and Q4.