The Bank of England kept interest rates unchanged, focusing on maintaining a sustainable 2% inflation rate amidst worldwide uncertainty and ongoing 4% inflation in the UK.
The Bank of England has incrementally raised interest rates in the past two years to combat inflation, which has reduced from a peak of 11% in 2022 to 4% by December 2023. Despite this decline, inflation continues to surpass the BOE's 2% target, necessitating further action for sustained reduction.
The MPC voted 6–3 to maintain the Bank Rate at 5.25%, with differing views on a potential increase to 5.5% and a decrease to 5%. Their projections indicate an expected decline in the Bank Rate to approximately 3.25% by the end of the forecast period.
Globally, GDP growth remains subdued, particularly in the UK, despite the U.S. displaying stronger economic activity. While inflationary pressures are easing in the euro area and the U.S., risks persist due to geopolitical tensions and potential shipping disruptions in the Red Sea. In the UK, GDP growth is anticipated to gradually improve, counteracting the impact of previous rate hikes.
The MPC anticipates CPI inflation to hover around 2.75% by year-end, remaining above the target due to domestic inflationary pressures. However, geopolitical factors pose an upside risk to this projection. Inflation is forecasted to stabilize at 2.3% in two years and 1.9% in three.
The MPC stresses the importance of maintaining a restrictive monetary policy to sustainably achieve the 2% inflation target. This stance will be adapted based on economic data, with particular attention to inflationary pressures and overall economic resilience.
Six MPC members voted to uphold the Bank Rate at 5.25%, with varying opinions on potential rate adjustments. The total stock of assets held for monetary policy purposes amounted to £738.0 billion.
The Bank of England is dedicated to its inflation target, striving to harmonize economic growth with the imperative to control inflation. The MPC's cautious decisions illustrate adaptability within an intricate economic landscape, emphasizing resilience in response to new data.
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