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Bank of England holds rates at 5.25%

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The Bank of England has kept UK interest rates on hold at 5.25 per cent, pushing sterling lower as the central bank signalled it is edging closer to cutting borrowing costs.

Governor Andrew Bailey said things were “moving in the right direction” on inflation after the BoE’s Monetary Policy Committee maintained the benchmark rate at its 16-year high for the fifth successive time.

Two members who had previously called for higher interest rates dropped their demands, instead voting with the majority for unchanged rates.

After Thursday’s announcement, sterling fell against the dollar to trade down 0.4 per cent on the day at $1.273.

Interest rate-sensitive two-year gilt yields dropped from 4.14 per cent ahead of the announcement to 4.11 per cent. The FTSE 100 index was 1.5 per cent higher.

Traders in swaps markets moved to fully price in three 0.25 percentage point cuts this year. They put the likelihood that rate cuts would begin by June at 75 per cent, up from around 70 per cent earlier in the day.

The BoE’s decision to keep rates at 5.25 per cent, which was in line with market expectations, came a day after the US Federal Reserve also kept interest rates on hold.

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

While political pressure for cuts is likely to intensify ahead of the UK general election expected this year, the BoE has argued it needs more evidence that price pressures are easing before it lowers interest rates.

The bank noted on Thursday that official data has shown inflation has fallen “relatively sharply” since the last MPC meeting in February.

In figures published this week, headline consumer price inflation for February dropped more than expected to 3.4 per cent — the lowest rate since 2021.

The BoE now expects inflation to fall slightly below its 2 per cent target in the second quarter of the year, as wage growth slows.

But it warned that inflation remains “elevated” for service prices, which rose at an annual rate of 6.1 per cent last month.

At this week’s meeting, all but one of the nine MPC members voted to keep rates on hold, with Jonathan Haskel and Catherine Mann dropping their previous calls for quarter-point rises. One member, Swati Dhingra, continued to vote for an immediate cut.


Source: Economy - ft.com

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