Bank of England Holds Rates Steady at 5.25%, Opens Door to June Cut

The Bank of England (BoE) has opted to maintain interest rates at 5.25% for the sixth consecutive meeting. However, it indicated a rate cut could come as early as June, as inflation appears to be easing toward the 2% target.

The BoE's latest assessment suggests the UK recession may have ended, with the economy potentially growing 0.4% in the first quarter of 2024 (official figures to be released on Friday). Furthermore, the BoE projects inflation to drop to 1.6% within two years.

Splitting the nine-member Monetary Policy Committee (MPC), Swati Dhingra and Dave Ramsden voted for an immediate rate cut. Governor Andrew Bailey hinted at a possible June cut, dependent on further inflation, economic, and labor market data.

Bailey emphasised the likelihood of rate cuts in upcoming quarters to ensure inflation remains near the target, potentially exceeding market expectations. This shift is fuelled by a projected easing in wage growth due to a modest rise in unemployment.

Bailey acknowledged encouraging signs of inflation easing, but the majority of the MPC favours additional evidence before enacting rate cuts. The US Federal Reserve similarly monitors labor market data for signs of weakening.

The BoE revised its inflation forecast downward, with potential volatility in mid-2024 before a sustained decline below target in 2025 and 2026. Though concerns exist about heightened Middle East tensions disrupting trade and pushing prices higher, the Bank maintains that risks haven't materialised yet.

While some analysts view the rate hold as a missed opportunity to ease pressure on households and businesses, others see a rate cut later this summer as increasingly likely. S&P Global warns that prolonged high rates, coupled with other cost pressures, will continue to hinder the UK's immediate economic recovery.