Bank of England Interest Rate Decision June 2024

LONDON — The Bank of England decided on Thursday to keep interest rates unchanged at its June meeting but said the decision was “delicately balanced” after U.K. inflation hit its 2% target.

Market expectations for an August rate cut rose to nearly 50-50 as investors took the message to be subtly dovish.

The central bank’s policy interest rate will be kept at 5.25%, the highest level in 16 years since August 2023.

Seven members of the Monetary Policy Committee voted to keep rates unchanged, while two voted to cut rates by 25 basis points, the same as at the May meeting.

In a statement, the Monetary Policy Committee noted that inflation had reached the central bank’s objective and that “near-term inflation expectations” and indicators of wage growth had eased.

The policy committee added that uncertainty about estimates from the Office for National Statistics made it “very difficult to gauge trends in labour market activity”.

Repeating a previous message that some analysts had expected the Fed might hold off on, the Fed again said monetary policy “needs to remain tight for a period sufficient to move inflation sustainably back toward our 2 percent objective.”

Inflation data released on Wednesday showed headline price growth slowed to 2% in May, hitting target ahead of the United States and the euro zone, despite Britain experiencing sharper inflation over the past two years.

But economists say persistently high UK service charges and core inflation suggest upward pressure is likely to continue.

The central bank’s decision to keep rates unchanged came just two weeks before a general election in which the state of the economy and proposals to revive sluggish growth are key issues.

Despite speculation that the politically independent Bank of England might act more cautiously as a result of the upcoming vote, Governor Andrew Bailey stressed that the bank would remain focused on its own data.

Attention will now turn to the prospects for a rate cut in August, with financial markets pricing a rate cut at nearly a 50% chance following Thursday’s statement, higher than the previous day.

The MPC said there was disagreement among the seven members who voted to stay the rate on the level of accumulated evidence needed to justify a cut and that the decision was a “delicate balance”.

The main indicator of sustained inflation “remains elevated”, raising concerns about second-order effects, particularly in services, robust domestic demand and wage growth, although some feel that May’s higher-than-expected services inflation has not had a significant impact on the UK’s overall deflationary trajectory.

Ruth Gregory, deputy chief UK economist at Capital Economics, said in a note that “several developments suggest a rate cut is on the way,” including the “finely balanced” comments and the fact that the Bank of England’s overall stance has not become more hawkish since May.

James Smith, developed markets economist at ING, said the chances of a rate cut in the summer were higher than the 30-40 percent that markets had previously priced in.

“Inflation, services inflation… I think the road is still downhill and they [the BoE] “We’re still pretty confident,” Smith told CNBC’s Silvia Amaro after Thursday’s announcement.

“a little bit [European Central Bank]I think they are probably more confident in their ability to forecast inflation than they were six to 12 months ago.”

Other European central banks, including the European Central Bank, the Swiss National Bank and the Swedish Riksbank, have already started easing monetary policy in an attempt to restart economic growth.

Traders are pondering when the first rate cut will come from the Federal Reserve, often seen as the leading central bank because of America’s outsized influence over the global economy. Financial market prices are suggesting a 65% chance of a cut in September, according to LSEG data.

of British pound It continued to fall against the US dollar, trading at $1.267, down 0.3% as of 1pm London time.