Bank of England leaves rates unchanged at 5.25%

21st Mar 2024 08:09

(Sharecast News) - The Bank of England left interest rates on hold on Thursday, as widely expected.

The rate-setting Monetary Policy Committee voted eight-to-one to leave the cost of borrowing unchanged at 5.25%, a 16-year high.

External member Swati Dhingra voted for a 0.25 percentage point cut to 5%. That compares to February's vote, when two members - Catherine Mann and Jonathan Haskel - voted for a 25 basis point hike.

Rates have now been left on hold since August, following 14 rises as the BoE looked to tackle soaring inflation.

However, with inflation now well off highs, the MPC is expected to start reducing rates this year.

Governor Andrew Bailey said: "In recent weeks we've seen further encouraging signs that inflation is coming down. We're not yet at the point where we can cut interest rates, but things are moving in the right direction."

Inflation currently stands at 3.4%, down significantly on 2022's high of 11.1% and the lowest since September 2021. The latest figure, released on Wednesday, was below both the 3.5% expected by analysts and February's 4%.

However, it remains above the BoE's long-term 2% target.

In the notes released alongside its decision, the MPC acknowledged: "The restrictive stance of monetary policy is weighing on activity in the real economy, is leading to a looser labour market and is bearing down on inflationary pressures.

"Nonetheless, key indicators of inflation persistence remain elevated.

"Monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, in line with the MPC's remit."

The BoE's cautious stance is similar to that taken by other major central banks, including the European Central Bank and US Federal Reserve, which also left rates on hold this week.

However, earlier on Thursday the Swiss National Bank surprised markets with a 0.25% cut.

Anna Leach, CBI deputy chief economist at the Confederation of British Industry, said: "Services inflation, though falling in line with expectations, remains relatively high at 6.1%. And wage inflation, while likewise having fallen back, is still running too hot to sustainably deliver 2% inflation, with risks that the forthcoming rise in the National Living Wage may yet spur renewed wage pressure."

Marion Amiot, senior European economist at S&P Global Ratings, said: "The BoE will need to see a lot more moderation in wages and services prices before it starts cutting rates.

"We don't expect that to be before August, as the labour market remains tight. While vacancies are falling, the workforce is barely expanding, supporting pay increases that are well above productivity gains and the 2% inflation target."

Neil Wilson, chief market analyst at Markets.com, said: "The hawks throw in the towel: tacit acceptance that higher for longer is about inflation, not interest rates. Haskell and Mann dropped vote to hike, and fell in line with consensus to hold. It confirms bias is now firmly tilted to cutting." Wilson currently expects the first cut to come in June.

Sterling softened against the euro and the US dollar following the announcement.