Bank of England holds interest rates at 5.25%

Blurred buses pass the Bank of England in the City of London on 7th February 2024 in London, United Kingdom. 

Mike Kemp | In Pictures | Getty Images

LONDON — The Bank of England on Thursday held interest rates steady at 5.25%, but hinted at cuts on the horizon as inflation falls faster than expected.

The Monetary Policy Committee voted 8-1 to keep rates steady, with one member voting to cut by 25 basis points to 5%. Notably, no members voted for further hikes for the first time in this cycle, after two members favored a quarter-point increase at the previous meeting.

Headline inflation slid by more than expected to an annual 3.4% in February, hitting its lowest level since September 2021, data showed Wednesday.

The central bank expects the consumer price index to return to its 2% target in the second quarter, as the household energy price cap is once again lowered in April.

“Headline CPI inflation has continued to fall back relatively sharply in part owing to base effects and external effects from energy and goods prices,” the MPC said in its report.

“The restrictive stance of monetary policy is weighing on activity in the real economy, is leading to a looser labour market and is bearing down on inflationary pressures. Nonetheless, key indicators of inflation persistence remain elevated.”

The MPC maintained that monetary policy “will need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term.”

It also said it will continue to “monitor indications of persistent inflationary pressures and resilience in the economy as a whole,” including labor market conditions, wage growth and services inflation.

The U.K. economy slid into a technical recession in the final quarter of 2023 and has endured two years of stagnation, meaning the central bank is performing a precarious balancing act between steering inflation sustainably back to 2% and avoiding pushing the economy into a prolonged downturn.

Major central banks around the world are trying to determine when to begin unwinding monetary policy after two years of rapid tightening, in a bid to tame a global inflation surge.

The U.S. Federal Reserve on Wednesday held steady on rates and stuck with its forecast for three rate cuts this year, with Chair Jerome Powell seeking confirmation that inflation is returning to the 2% target despite a recent spate of hotter-than-expected readings.

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