Bank of England Keeps Rates on Hold at 5.25%
The Bank of England (BoE) has kept policy rates on hold at 5.25%, and more importantly, it’s keeping its so-called forward guidance unchanged.
The Monetary Policy Committee, MPC, members voted 8-1 to keep rates on hold, as MPC member Dhingra voted to cut rates by 25 basis points.
It’s worth remembering that Dhingra has regularly been a dovish outlier relative to other committee members since she joined the committee a couple of years ago.
From the bank’s statement, monetary policy might retain its restrictive nature despite a reduction in the bank rate.
In addition, significant indicators of inflation persistence continue to be high, while the current restrictive policy stance is exerting pressure on the economy, easing the labour market, and suppressing inflationary pressures.
In addition, Governor A. Bailey expressed that the committee has not reached the stage where it can reduce rates, but he acknowledged that circumstances are progressing in a favourable direction.
The Bank also decided to maintain the guidance provided during its February meeting. According to the BoE, the policy needs to remain at a sufficiently high level for an adequate duration.
The duration for which the bank rate should stay at its current level will continue to be evaluated.
That guidance, which has stayed broadly the same for a few months now, says that rates need to stay sufficiently restrictive for an extended period of time, ING said in a commentary note.
BoE noted that there are still significant risks, particularly related to developments in the Middle East.
While the labour market is showing signs of loosening, it remains relatively tight. The staff forecast for Q1 GDP growth is +0.1%, which is consistent with the February forecast. They expect a slight further increase in Q2.
The measures outlined in the Spring Budget are likely to contribute approximately 0.25% to GDP growth over the next few years, although they are expected to have a relatively modest impact on inflation pressures.
The fact that the forward guidance has stayed unchanged today suggests markets are right to put a relatively small probability on a May rate cut, ING analyst said in a note.
Remember that April’s inflation data, due after the May meeting, will be hugely consequential because this is when a large portion of the services basket is affected by annual contract-linked price rises.
Last year this process saw services inflation come in way higher than everyone expected, and it adds an air of unpredictability to the consumer price index data through the second quarter. #Bank of England Keeps Rates on Hold at 5.25%
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