Please see below article received from Evelyn Partners this afternoon, which conveys their Investment Strategy team’s thoughts on today’s Bank of England MPC decision to continue to hold interest rates at 5.25%.
What happened?
The Bank of England (BoE) held the base rate at 5.25% at their meeting today. This was consistent with market expectations and marks the sixth consecutive meeting where rates have been held at this level.
The committee vote remained split two ways albeit with another move in the more dovish direction with 7 members voting to hold the base rate at 5.25% and Ramsden joining Dhingra in calling for a 25 basis point cut.
In addition to this there was also a further dovish tilt with 2-year and 3-year CPI forecasts being revised down to 1.9% and 1.6%, from 2.3% and 2.2%. The guidance remained more balanced in keeping the “policy could remain restrictive even if Bank Rate were to be reduced” but adding that it will watch “forthcoming data releases and how these informed the assessment that the risks from inflation persistence were receding.”
What does it mean?
As widely anticipated, the BoE held the base interest rate at 5.25%. Dovish changes included the vote split moving from 8:1 to 7:2 and CPI projections showing a quicker deceleration beyond the 2% target.
Since the March meeting, UK economic data has come in mixed with weak Q423 GDP offset by a stronger start to the year. Domestic wage data and inflation, while still heading in the right direction, then came in slightly above expectations.
Market rate expectations over the period however moved significantly higher, arguably more in relation to stronger US data than the combination of domestic news.
The BoE’s downgrades to CPI forecasts could be seen as indicating that the markets had potentially priced in too much. However, that the guidance remained more neutral arguably detracted from this nuance and market reaction was muted. The odds of a June rate cut nudged up to ~55% from ~50% before the announcement with the full cut still being priced in for August. In total there are 2 cuts priced in for 2024.
Bottom Line
The BoE held interest rates at 5.25%. We continue to expect the first rate cut to materialise over the summer as inflation heads to target but acknowledge that a stronger US and global recovery could have implications.
Please check in with us again soon for further relevant content and market news.
Chloe
09/05/2024