Economists suggest that the Bank of England might have erred on the side of caution by maintaining unchanged rates, despite signs of inflation easing.
Suren Thiru, Economics Director at ICAEW, commented, “Although the decision to hold interest rates steady was anticipated, the more dovish vote split and meeting minutes indicate that policymakers are considering the possibility of rate cuts later this year.
While the interest rate hiking phase is now in the past, the delayed impact of tightening policy on the broader economy means that the repercussions of 14 rate increases have yet to fully materialize.
The Bank of England’s cautious stance on potential rate cuts, despite significant inflation deceleration and an economy in recession, raises the risk of prolonging economic challenges by maintaining policy tightness for an extended period.”
Kathleen Brooks at XTB highlighted the absence of rate hike votes from Catherine Mann and Jonathan Haskel, the Bank of England’s two most hawkish policymakers. She remarked, “This indicates that even the BOE’s hawks acknowledge the progress made regarding inflation and are content with the current rate level. This potentially paves the way for rate cuts in the upcoming months, although the BOE refrained from divulging the timing of such a move.”
Neil Shah, Director at Edison Group, described the decision to keep rates at 5.25% as “anticipated but disappointing,” emphasizing the Bank’s focus on managing inflation over providing immediate economic stimulus.
He remarked, “Today’s decision highlights the Bank of England’s inclination toward inflation control rather than immediate economic revitalization. It appears that, in navigating the delicate balance between supporting recovery and reining in inflation, the Bank is opting for caution, potentially sacrificing growth opportunities in the process.”
The Bank of England may be favouring caution over growth prospects following its decision to maintain interest rates at their 16-year highs. Looking forward, it is expected that the Bank of England will continue to proceed cautiously, likely following the lead of the Federal Reserve. Speculation is mounting for rate adjustments as early as June.
