Bank of England Signals Potential Rate Cuts as UK Inflation Eases

Bank of England Governor Andrew Bailey stated that the UK economy is approaching a point where interest rate cuts could be considered, with easing inflation prompting this shift in stance. Two policymakers, previously in favor of rate hikes, changed their position, aligning with an 8-1 decision by the Monetary Policy Committee (MPC) to maintain borrowing costs at their 16-year high of 5.25%. This decision reflects a notable shift from previous months when some members advocated for rate increases.

Bailey highlighted encouraging signs of decreasing inflation but emphasized the need for more certainty regarding price pressures before considering rate cuts. While not yet at a stage to implement rate cuts, Bailey acknowledged that the economy is moving in the right direction. Investors responded by adjusting expectations, with markets anticipating two or three rate cuts throughout 2024.

The decision coincides with a broader global trend, following announcements from the U.S. Federal Reserve regarding potential interest rate cuts. However, the Bank of England maintained a cautious stance, noting that monetary policy could remain restrictive even in the event of rate cuts. While recent data shows a decline in consumer price growth, indicators of persistent inflation remain elevated, necessitating further moderation in wages and services prices before initiating rate cuts.

The Bank of England anticipates inflation to fall below its 2% target in the second quarter, influenced by recent government measures to mitigate price pressures. However, it expects inflation to rise later in the year, underscoring the need for continued vigilance. Despite growing pressure for rate cuts from various sectors, including the ruling Conservative Party, the central bank remains focused on ensuring a balanced approach to monetary policy.

Source: Reuters