Prior to the meeting of the central bank’s Monetary Policy Committee, some policymakers, including BoE Governor Andrew Bailey, suggested that they could be gearing up to advocate for a downward move.
Undergirding this rhetoric was inflation in the U.K., which eased in March to 3.2% on a twelve-month basis — although this pace was faster than economists had initially anticipated. Year-on-year growth in the price of services also slowed.
At its May gathering, the MPC voted 7-2 to maintain the rate at its current level. The two members in the minority preferred to reduce the bank rate by 25 basis points to 5%, the BoE said in a statement. In March, the MPC’s vote was 8-1.
The BoE said that while monetary policy will need to “remain restrictive” to bring price growth back down to its 2% target, the elevated stance is “weighing on activity in the real economy, is leading to a looser labour market and is bearing down on inflationary pressures.”
“Key indicators of inflation persistence are moderating broadly,” it added.
Analysts at ING argued that the BoE’s decision shows that the central bank is “undoubtedly turning more optimistic” on inflation, but is choosing to keep its options open due to lingering uncertainty around the short-term evolution of prices.
Officials, as a result, did not come down clearly in favor of a rate cut at its next meeting in June, the ING analysts said.
Bailey told reporters following the announcement that a June reduction was “neither ruled out, nor a fait accompli,” flagging that there are still two inflation readings between now and the upcoming meeting.
The British pound weakened slightly against the dollar on Thursday, while the rate-sensitive 2-year Gilt yield edged down. The blue-chip FTSE100, meanwhile, inched higher.
Source: Economy - investing.com
