Bank of England holds policy rate unchanged

The thorny question of what the Bank of England should do with the Base Rate has been answered today. Nothing.

According to the BoE monetary meeting report published today, the central bank voted 7-2 to hold the interest rate unchanged at 5.25 percent. This means that the Base Rate has been held at a restrictive level for almost three quarters now. Most of the dovish forecasts made at the start of the year have not really materialised.

But what about the rest of 2024, will the UK central bank start to slash interest rate like Sweden’s Riksbank earlier this week? Perhaps. According to the MPC report, they predicted that “demand growth is expected to remain weaker than potential supply growth” and that “a margin of economic slack is projected to emerge during 2024 and 2025.”

On inflation, the BoE wrote that the “CPI inflation is expected to return to close to the 2% target in the near term, but to increase slightly in the second half of this year, to around 2½%, owing to the unwinding of energy-related base effects.”

In other words, they have not really closed the door on rate cuts despite holding the rate steady today. But neither will the BoE cut the borrowing cost by too much. Unless, of course, the economy makes a decisive turn southwards.

Given this somewhat negative economic outlook, Sterling took a modest hit, especially against the Dollar. The rate has cut through the 1.245 support which raises the possibility to touching 1.240 in the days ahead (see below).