The Bank of England (BoE) has decided to keep interest rates unchanged at 5.25 percent for the fifth consecutive time. However, the bank acknowledges that the possibility of a rate cut is now “moving in the right direction.”
Although there has been further progress in controlling inflation, the nine-member rate-setting committee collectively believes it is still too early to consider lowering interest rates. Two members who previously supported a rate hike have changed their stance, resulting in eight out of nine members supporting no change. The remaining member, Swati Dhingra, has backed a reduction to 5 percent for the second consecutive meeting.
Read more: BoE maintains interest rate unchanged at 5.25 percent for fourth consecutive time
Positive signs of progress
Governor Andrew Bailey stated that while interest rates cannot be cut yet, there are positive signs of progress. The pace of inflation in the economy has significantly decreased from the peak of 11 percent during the energy-driven cost of living crisis. However, the current headline reading of 3.4 percent remains well above the Bank’s target of 2 percent.
The committee is concerned about strong wage growth, which is significantly higher than the inflation rate at 6 percent. They fear that this could fuel demand in the economy and contribute to further inflationary pressures.
Temporary dip in inflation
Although inflation is expected to temporarily fall below the target rate in April, mainly due to lower energy bills and a freeze on fuel duty, the Bank of England’s forecasts suggest that it will rise again. Rate-setters are seeking a clearer outlook for the future, considering factors such as increasing global oil costs and price increases resulting from disruptions to shipping through the Suez Canal.
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