Bank of England kept interest rates constant at 5.25% today, with the vote widening somewhat but staying very close.
Bank of England kept interest rates constant at 5.25% today. With the vote widening somewhat but staying very close.
The fact that the decision is still close demonstrates how unclear the MPC’s outlook remains and how. As Bailey emphasized in the press conference that followed, the risks to inflation remain to the upside.
However, based on its projections, which show inflation falling below 2% during the forecast term. A rate cut appears to be the most likely next step. Of course, these projections are always vulnerable to change, and they do so frequently, especially in such a difficult and uncertain climate.
Nonetheless, it appears to be evident. The BoE, like many of its peers, has completed the tightening cycle, and the question now is how long it will remain at the high. Of course, this is especially critical at a time when rates are potentially considerably restricted.
Bank of England continues to use the terminology of “sufficiently restrictive for a sufficient length of time.
The BoE continues to use the terminology of “sufficiently restrictive for a sufficient length of time,” which isn’t as helpful as they may believe. However, it comes off as softer than some of its contemporaries, which may indicate that it is not as sure that rates will remain at their peak for as long as others. Or, like everyone else, perhaps I’m reading too much into these statements.
A final aspect that was made clear during the news conference was how seriously The MPC has been taken aback by wage growth and what it means for inflation and interest rates. Wage growth measures may thus become the major data release in the future as other parts of the economy cool, but this remains persistently high. Lower wage growth could swing the balance of projections in favor of early rate reduction.
The pound has been rather choppy throughout the first release and fresh predictions, as well as the press conference, but nothing has moved materially, implying that today has mostly transpired as expected. There is still a lot of uncertainty, and the data in the following months may help to clear things up. Until then, the BoE, like its peers, is in a holding pattern.
