The Monetary Policy Committee of the Bank of England unanimously decided to maintain the 5.25 per cent interest rate, a 16-year record, changing the outlook of two members who had earlier advocated for a rise. While the UK’s economy shows promising movements towards lowering interest rates, according to Governor Andrew Bailey, the bank seeks greater assurance that economic price pressures are under full management.
Both Jonathan Haskel and Catherine Mann, two committee members, shifted their positions to align with the majority maintaining the current rate, while Swati Dhingra remained the solitary voice for a rate reduction to 5 per cent.
Andrew Bailey, the governor, noted that inflation is displaying optimistic signs of a decrease, but stressed the prematureness of a rate reduction until the price pressures are securely under control.
The decision to hold the rate of the Bank of England follows the US Federal Reserve’s declaration of plans for three rate cuts this year, which prompted a global stock market rally. The European Central Bank, however, attempted to temper discussions of similar cuts in the Eurozone.
The British Central bank expressed in February that the elevated borrowing cost was up for review, a position reinforced this Thursday. Notwithstanding, senior officials emphasised the requisite of definite signs of inflation control. Despite inflation indicators remaining high, Britain’s labour market continues its resilience amidst rising borrowing costs potentially affecting the economy, along with the UK having the highest inflation rate amongst the Group of Seven nations at 3.4 per cent.
The British Central Bank anticipates inflation to fall below its 2 per cent target in the second quarter, influenced by Finance Minister Jeremy Hunt’s recent decision to uphold the freezing of fuel duty.
Jeremy Hunt’s budget statement on March 6th is expected to boost the economy by roughly 0.25 per cent in the future, albeit with a smaller increase in inflation, as per the announcement. While most market observers and investors predict a first-time rate cut from the Bank of England (BoE) in the third quarter, particularly at the August meeting, the prognosis from the financial market on Thursday was that there was a 70 per cent likelihood of the initial cut happening in June, factoring in three-quarters of a point reduction over the course of 2024.
The central bank, however, aims to observe a further slowdown in salary growth before it acts. The minimum wage in the UK is set to increase by almost 10% next month, leading to the implementation of salary hikes by retailers who often barely pay more than that amount. Since the beginning of 2024, employers have proposed an approximate 5 per cent pay settlement, while the average wage growth stands at approximately 6 per cent, surpassing the roughly 4 per cent observed in both the United States and the Eurozone.
In addition to employers, mortgage payers and consumers, the incumbent Conservative Party is also eager for lower rates as they wrestle with the opposition Labour Party’s robust lead in the polls, with an election anticipated to occur later this year. The finance minister, Jeremy Hunt, took the unusual move of speculating on the potential implications of Wednesday’s inflation figures for the BoE, declaring “As inflation gets closer to its target that opens the door for the Bank of England to consider bringing down interest rates.” (Reuters)