The Bank of England on Thursday left UK interest rates unchanged, after a three-way voting split, and said it needed more evidence before it could start easing monetary policy.
The BoE’s Monetary Policy Committee (MPC) agreed by a majority of 6-3 to leave Base Rate unchanged at 5.25%, leaving rates at a 16-year high.
But one member, Swati Dhingra, voted to cut rates to 5%, while two others, Jonathan Haskel and Catherine Mann, continued to press the case that rates should be hiked.
The other six members of the MPC voted to leave rates unchanged.
The BoE said the restrictive stance of monetary policy is weighing on activity in the real economy and is leading to a looser labour market with the risks to inflation now more balanced.
But it dropped its previous reference to the “risk of further tightening” and governor Andrew Bailey talked explicitly about rate cuts for the first time since the hiking cycle began.
But he still said evidence is needed “before we can lower” rates.
Paul Dawes at Capital Economics said while leaving interest rates unchanged the Bank of England sent some “soft signals that the next move will be a cut, but it pushed back more strongly against the idea that rates will be cut soon or far.“
“A rate cut in June is still possible and we think rates will end 2025 at 3.00%,” he said.
While he thinks the next move in rates will be a cut, he noted the Bank pushed back against the market view that rates will be cut to 5.00% in June and to 3.25-3.50% by the end of 2025.
The Bank retained the language that policy will remain “sufficiently restrictive for sufficiently long” and restrictive for an “extended period”, he pointed out.
He felt the message “is that the market has got ahead of itself with rate cuts.”
The BoE expects CPI inflation to fall temporarily to the 2% target in the second quarter of 2024 before increasing again in the third and fourth quarters.
It continued to judge that the risks around its CPI inflation projection are skewed to the upside over the first half of the forecast period, stemming from geopolitical factors.
CPI inflation is expected to be around 2.75% at the end of 2024, 2.3% in two years’ time and 1.9% in three years.