On Thursday, the Bank of England opted to maintain the existing interest rates while adjusting its stance on potential cuts.
According to Bank of England Governor Andrew Bailey, inflation is trending in the right direction, a sentiment echoed by the Monetary Policy Committee, which retreated from a prior hint at a potential rate hike.
In the Monetary Policy Committee meeting, six out of nine members voted to retain rates at 5.25%. Jonathan Haskel and Catherine L. Mann supported a 0.25% increase, while Swati Dhingra favored a 0.25% reduction.
Economists surveyed by Reuters anticipated only one vote in favor of a rate hike, with others predicting unchanged rates. Post the Bank of England's announcement, investors adjusted their projections for bank rate cuts in 2024, although they still anticipated four cuts during the year.
Bank of England Governor Andrew Bailey emphasized the bank's cautious stance, highlighting that attaining a 2% inflation target is an ongoing endeavor. He underscored the need for additional evidence showing inflation's descent to 2% and its stability before considering interest rate cuts.
Aside from that, the Bank of England took a step back from its previous caution regarding potential policy tightening in the event of accelerated inflation. Instead, it stated that it would closely monitor the duration for which rates should be sustained at their current levels.
In contrast to the more explicit leanings toward rate cuts by the US Federal Reserve and European Central Bank, the Bank of England continues to exercise caution.
The Bank of England stands firm in its dedication to an extended cautious approach, even amid revised inflation projections for the months ahead. The distinctive surge in wage growth in Britain sets it apart, hinting at the possibility of sustained long-term inflationary pressures.
As per the central bank's forecast, annual inflation is anticipated to reach 2% in the second quarter of the current year. However, the medium-term outlook suggests a resurgence above 2% in the third quarter of 2024, with a return to the target not projected until the conclusion of 2026.
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