- Bank maintains interest rate
- Growth projections revised upwards
- Rate cuts anticipated
Additionally, the Bank revised its projections for economic growth in the forthcoming years. Since early 2025, it now anticipates annual growth rates of 0.5 percent, as opposed to the initial estimate of negative growth.
The Governor of the Bank of England has expressed confidence that a reduction in interest rates is imminent.
Andrew Bailey spoke shortly after the Bank predicted that, within a few months, inflation could moderate to its target of 2%.
At its most recent meeting, however, it decided to maintain borrowing costs at 5.25 percent for the fourth consecutive meeting.
For the first time since the pandemic, one member of the Bank’s rate-setting Monetary Policy Committee (MPC) voted for a reduction in its base-level interest rate.
The British central bank indicated that it was inching closer to a rate cut by removing language from the meeting minutes that suggested the possibility of additional increases and by failing to refute widespread expectations that it would begin reducing rates later this year.
This was the case notwithstanding ongoing prudence regarding the trajectory of price escalations.
When asked for an estimate of the appropriate duration for interest rates to remain at their current level, Mr. Bailey replied, “Barring any changes in the global landscape, which is regrettably the case at the moment, the subsequent determination will likely be on when to reduce rates.”
He additionally stated: “We haven’t reached a view on when that will be.”
The fact that the nine-member committee was divided in three ways—with one member, Swati Dhingra, voting for a reduction, two members supporting higher rates, and the remaining six members supporting a hold—is an additional indication that the committee is beginning to consider reducing the rate.
A member has voted for lower rates for the first time since March 2020, and the committee is divided three ways on whether to raise, decrease, or maintain rates for the first time since March 2008.
At present, investor sentiment suggests that the Bank will commence interest rate reductions in the mid-year, with a projected final rate of slightly above 3% by 2026.
The Bank’s projections of imminent reductions did not dissuade them; however, Mr. Bailey stated that the time had not yet arrived.
He noted that although the annual inflation gauge, the consumer price index, is projected to decline to 2% in April, it will subsequently recover, primarily due to energy costs.
“Today, we’ve decided to maintain interest rates at 5.25 percent,” he stated. The inflation outlook has been positive for the past few months. It has decreased significantly in the past year, from 10% to 4%.
However, additional evidence that inflation will fall to the 2% target and remain there is necessary prior to reducing interest rates.
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Optimistic GDP Growth Projections
In the coming years, the Bank has revised its projections for the development of its gross domestic product (GDP). Specifically, it now anticipates annual growth rates of 0.5% by early 2021 (previously estimated at zero percent), 0.8% by early 2026 (previously estimated at 0.6%), and 1.5% by early 2027.
However, it stated that it only anticipated negative GDP growth in the fourth quarter of the previous year, implying that there is a near 50/50 chance that the United Kingdom will experience a technical recession (since the previous quarter was a contraction).
According to the Bank’s economists, approximately two-thirds of the effects of increased interest rates have now permeated the broader economy. However, mortgage rates for over two million households will revert to higher levels in the coming months.
