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HomeNews UKBank of England’s Interest Rate Decision Is Today. What to Expect.

Bank of England’s Interest Rate Decision Is Today. What to Expect.

The big question is whether the BOE can start thinking about cutting interest rates and, if so, when. The UK’s inflation rate is closer to the central bank’s target than it has been in the past two years. However, it needs to fall further to keep policymakers happy.

BOE Governor Andrew Bailey said falling inflation was “good news”. And he said the next interest rate move would likely be a cut, saying the issue now is how long borrowing costs need to remain at current levels.

“We will not maintain this stance any longer than necessary,” Bailey said at a news conference.

The bank now sees the inflation rate falling temporarily to target in the second quarter before rising again in the second half of the year. “Monetary policy needs to be restrained for an extended period until the risk of inflation exceeding the 2% target disappears,” the bank said in a statement accompanying the decision.

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Inflation remained at 4% and unexpectedly rose higher in December, making policymakers reluctant to loosen. At the central bank’s meeting six weeks ago, three of the nine Monetary Policy Committee members said they favored further interest rate increases. This time, two members voted in favor of a quarter-point increase, while one member voted to decrease it by a quarter-point.

ING economist Chris Turner said the upshot of the meeting was that the BOE was signaling that rate cuts could start later than people expected. He expects the first reduction in August.

“The bank is making clear that it needs more time and more evidence that the deflationary trend is correct before it is prepared to move firmly into dovish territory,” Turner wrote in a note.

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BOE has kept the benchmark rate at 5.25% since August. Previously, the bank raised interest rates at 14 consecutive meetings, starting from December 2021, raising borrowing costs from nearly 0. Inflation peaked at 11% in October 2022 and has generally slowed since then.

The Fed kept its benchmark interest rate at 5.25%-5.5% on Wednesday. Chairman Jerome Powell said that while slower price growth was “very good news…inflation remains too high and ongoing disinflation progress remains uncertain.”

The European Central Bank, responsible for the monetary policy of the 20 countries that share the euro, left its key interest rate unchanged last week.

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Markets are currently pricing in the Fed’s first rate cut in May, with cuts from the ECB and BOE expected later this year.

Write to Brian Swint at brian.swint@barrons.com

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