Mikkel Rosenvold
9 weeks ago

Bank of England holds rates, cuts coming closer

Bank of England kept interest rates at 5.25% on Thursday, but economists are divided

The Bank of England decided to maintain interest rates at 5.25% amidst divided economist opinions on the timing of the first rate cut, Reuters writes.

February's data revealed a significant drop in headline inflation to 3.4%, the lowest since September 2021, fueling expectations for a reduction to the bank's 2% target with the April energy price cap adjustment.

Despite the positive inflation trend, the Monetary Policy Committee (MPC) hesitates to signal the exact timing for rate cuts. The U.K.'s recent slip into a technical recession, exacerbated by a gas supply shock post-Russia’s Ukraine invasion, adds pressure for policy loosening to support economic recovery.

Berenberg Senior Economist Kallum Pickering suggests a potential June rate cut hint by the MPC, aligning with market expectations. However, the February MPC meeting showed a split decision, indicating a cautious approach towards rate adjustments.

The focus remains on the tight labor market and its inflation entrenchment risk, with recent data showing wage growth deceleration and rising unemployment.

Analysts predict a gradual move to less restrictive monetary policy, expecting rate cuts to 4% by year-end and further to 3.5% in early 2025, contingent on economic recovery and labor market dynamics.

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