The Bank of England Monetary Policy Committee (MPC) has chosen to maintain the interest rate at its current level of 5.25%. This decision comes after a closely watched meeting, where six out of the nine MPC members voted to keep the interest rate unchanged, while the remaining three members advocated for a rate hike. This decision has sent somewhat of a hawkish signal to the financial markets, as many had anticipated at least one MPC member to favor a rate cut.
The MPC’s announcement also included an upward revision in its inflation projections for the next two years, with the figures rising from 1.65% to 1.90%. This upward adjustment suggests that the Bank of England is not in a hurry to lower interest rates. Nevertheless, market participants remain skeptical of this stance, and experts continue to voice concerns about the potential for interest rate cuts in the near future.
Bank of England Keeps Interest Rate at 5.25%
Many economists and analysts are not convinced by the Bank of England’s commitment to maintaining the current interest rate. This cites concerns about the possibility of a faster deterioration in the UK’s economic conditions. Samuel Tombs, an economist at Pantheon Macroeconomics, stated, “We are sticking with our forecast that the MPC (Monetary Policy Committee) will reduce Bank Rate by 75 basis points next year, with the first 25-basis-point-cut coming in May.” He added that the MPC’s stance could shift rapidly as economic data evolves.
Julian Jessop, an Economics Fellow at the Institute of Economic Affairs, criticized BoE Governor Andrew Bailey’s assertion that it was too early to consider an interest rate cut. Jessop highlighted weaknesses in economic activity and inflation compared to the central bank’s projections, along with declining credit and money growth and recession signals from business surveys.
The Bank of England’s economic projections indicate that the UK’s economic growth is going to remain sluggish until early 2025, falling below historical averages in the medium term. However, BoE officials emphasize that their primary concern is inflation rather than the risk of a recession. This prioritization forms the foundation of the Bank of England’s decision to maintain the interest rate at 5.25% in the latest policy meeting.
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