General view of the Bank of England building in London.
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LONDON – The Bank of England on Thursday chose to keep interest rates steady at its June meeting but called the decision “very balanced” after British inflation hit its 2% target.
Money market pricing has raised the odds of a rate cut in August to nearly 50-50, with investors taking that as a subtly dovish message.
The central bank’s key interest rate is 16 years It has remained at a high of 5.25% since August.
The seven members of the Monetary Policy Committee voted to remain unchanged, with two members in favor of a 25 basis point interest rate cut. The results were consistent with the vote at the May meeting. One basis point is equal to one hundredth of a percentage point.
In a statement, the Monetary Policy Committee noted that inflation had reached the central bank’s target and said “short-term inflation expectations” and wage growth indicators had slowed.
The MPC added that “it is difficult to measure the evolution of labor market activity” due to uncertainties in the ONS estimates.
The Bank of England once again said that monetary policy needs to “remain restrictive for a long enough period to bring inflation back to the 2% target sustainably”.
Inflation data show wednesday Although Britain’s inflation rate has risen sharply over the past two years, overall price growth fell to 2% in May, ahead of the United States and the euro zone in reaching the target.
However, economist says Persistently high services rates and core inflation in the UK suggest the potential for continued upward pressure.
Just two weeks before the election, the central bank made the decision to keep interest rates on hold. economic status and suggestions for restarting grow slowly has become a key battlefield.
Despite speculation that the politically independent Bank of England may act more cautiously in light of the upcoming vote, Governor Andrew Bailey stressed that it would continue to monitor its own data.
“Finely balanced”
Attention will now turn to the prospect of a rate cut in August. Money market pricing points to a near 50% chance of this happening with Thursday’s statement, up from the day before.
The Monetary Policy Committee said its decision was “well balanced” as the seven members who voted for the cut were divided over the level of cumulative evidence needed to support a rate cut.
Some believe key indicators of inflation persistence “remain elevated,” particularly the services sector, strong domestic demand and wage growth. However, others believe that higher-than-expected services inflation in May did not have a significant impact on the UK’s overall deflation trajectory.
Ruth Gregory, deputy chief U.K. economist at Capital Economics, said in a note that “a number of developments suggest a rate cut is getting closer,” including comments that were “delicately balanced.” and the fact that the Bank of England’s overall tone has not become more hawkish than before.
James Smith, developed markets economist at ING, said the likelihood of a summer rate cut was higher than the 30% to 40% the market had previously priced in.
“I think the inflation numbers, the services inflation… I think the road is still rocky here, and I think the road ahead is still rocky,” Smith told CNBC’s Silvia Amaro after Thursday’s announcement. Think they (the Bank of England) will remain reasonably confident.
“A bit like the (European Central Bank), I think they are more confident in their ability to forecast inflation than they were six to 12 months ago,” Smith said.
Other European central banks have already begun easing monetary policy, including European Central Bank, swiss national bank and Riksbankas they seek to restart economic growth.
The Federal Reserve, often seen as the leader of central banks, also left traders wondering when it might cut interest rates for the first time due to the United States’ outsized influence on the global economy. London Stock Exchange data showed that money market pricing showed a 65% chance of a U.S. interest rate cut in September.
this GBP The exchange rate was down 0.3% at $1.267 against the dollar at 1 pm in London.
