As priced in by markets
The Bank of England’s (BoE) Monetary Policy Committee (MPC) opted to keep interest rates unchanged at 4.5% in its second meeting of the year.
Eight MPC members voted in favour holding the interest rate steady, while Swati Dhingra wanted to reduce the rate by another 0.25 percentage points.
Last month, the MPC implemented a quarter point rate cut from 4.75% to 4.5%.
Today (20 March), the MPC said that since its previous meeting uncertainty surrounding global trade policy had intensified, with the US pushing with a series of trade tariffs on major trading partners.
“Other geopolitical uncertainties have also increased and indicators of financial market volatility have risen globally,” the BoE said. “The German government has announced plans for significant reform to its fiscal rules.”
On the UK front, the bank said the 12-month inflation figures for January, which hit 3%, up from 2.5% in December, came in “slightly higher than expected in the February Report”.
“Domestic price and wage pressures are moderating but remain somewhat elevated”, the BoE added.
“Although global energy prices have fallen back recently, they remain higher than last year, and CPI inflation is still projected to rise to around 3.75% in 2025 Q3. While inflation is expected to fall back thereafter, the Committee will pay close attention to any consequent signs of more lasting inflationary pressures.”
In a Treasury Committee hearing on 5 March BoE governor Andrew Bailey said that although the underlying trends toward disinflation influenced his vote for a rate cut in February, inflationary pressures were expected to pick up again.
However, he noted the rise inflation would be “nothing like what we saw a few years ago”.
BoE chief economist Huw Pill agreed with Bailey and added at the time that the process of falling inflation is not over.
“In my view, there is more work to do to squeeze those domestic underlying inflationary pressures out of the system,” the Pill said. “That entails maintaining some restrictiveness in the monetary policy stance, and that points against both larger and more rapid cuts in bank rate at this point.”
The next MPC meeting is scheduled for 8 May.
Sorin-Andrei Dojan (Professional Adviser)