City of London skyline on 6th March 2024 in London, United Kingdom.
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LONDON — The Bank of England on Thursday announced a widely-expected hold on interest rates following its May meeting, as it said restrictive monetary policy was working to bring down inflation.
Members of the central bank’s Monetary Policy Committee voted 7-2 to hold, with the latter favoring a cut. In the prior meeting only one member voted for a cut.
The MPC nonetheless cautioned that indicators of inflation persistence “remain elevated.”
It keeps the BOE’s key Bank Rate at 5.25%.
Market anticipation is 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.
Some economists see a cut as soon as the next meeting in June, and three or more cuts in 2024. That is largely because U.K. headline inflation is forecast to drop dramatically in April due to lower energy prices from the current 3.2% to below the BOE’s 2% target, according to some projections.
“While [economic] growth is increasing, the labor market continues to loosen. Ultimately, we think that will feed into weaker wage growth. We do expect that to come down across the course of this year,” Matthew Swannell, U.K. economist at BNP Paribas, told CNBC’s “Street Signs Europe” on Thursday.
“As well as that we see other costs coming down, particularly non-labor costs and those related to energy, passing through the supply chain and lowering services and goods prices, ultimately helping the Bank of England get inflation back towards the 2% mark.”
This is a breaking news story and will be updated shortly.