The Bank of England has decided to maintain interest rates at 16-year highs, aligning with market expectations.
The Monetary Policy Committee voted 7-2 in favour of keeping the borrowing rate steady at 5.25%, marking the sixth consecutive meeting without a change.
Two members advocated for a rate reduction, with one member joining the committee’s most dovish advocate, Swati Dhingra, signalling a potentially favourable shift for the market.
Following this decision, the FTSE 100 rose by 30 points for the day, reaching approximately 8,384.
Governor Andrew Bailey expressed optimism in his remarks alongside the announcement, which likely contributed to the surge in the FTSE 100. He commented, “We’ve seen promising developments regarding inflation, and we anticipate it will approach our 2% target in the coming months. However, we need more evidence that inflation will remain low before considering a rate cut. I’m optimistic about the direction things are heading.”
Investors now expect the first rate cut could occur as early as June, with financial markets assigning a 50% probability to a reduction in borrowing costs next month. If this does not materialize, expectations are set for a rate cut by August.
Jeremy Batstone-Carr from Raymond James Investment Services noted, “Since the last MPC meeting, both headline and core inflation rates have decreased, continuing a downward trend. We expect the CPI data on May 22nd to reveal significant declines in price increases, potentially setting the stage for rate cuts in June.
Despite signs of a loosening labour market, which provides further encouragement to the MPC, concerns about the inflationary impact of a rate cut persist among some members. The committee remains split on the path forward, with some members cautious about the slow pace of deflation.”
