The Bank of England’s Monetary Policy Committee (MPC) has voted to maintain interest rates at 5.25% for the sixth meeting in a row, as the UK’s central bank continues its balancing act between taming inflation and avoiding economic stagnation.
No Surprise in MPC Decision
As widely expected, the MPC held firm on borrowing costs, with a 7-2 split among policymakers. The decision reflects cautious optimism that inflation is easing, though Governor Andrew Bailey emphasised the need for further evidence before considering rate cuts.
Inflation Battle Not Yet Won
While headline inflation has fallen sharply from its 11.1% peak in October 2022 to 3.2% in March, the Bank remains wary of persistent service sector inflation and wage growth running at 6% – both seen as indicators of entrenched price pressures.
Key factors influencing the decision:
- Service price inflation still at 6%
- Private sector wage growth remains elevated
- GDP showing signs of recovery after technical recession
- Global economic uncertainty persists
What This Means for Households and Businesses
The hold means continued pain for mortgage holders on variable rates or coming off fixed deals, but provides stability for businesses planning investments. Savers, meanwhile, will see little change in returns from high street banks.
"We’re not yet at the point where we can cut interest rates, but things are moving in the right direction," Bailey told reporters, suggesting the Bank is preparing the ground for potential reductions later in 2024.
Market Reactions and Future Outlook
Sterling showed little immediate reaction to the announcement, having priced in the expected outcome. Economists now predict the first rate cut could come as early as August, though much depends on upcoming inflation and employment data.
The Bank’s next moves will be closely watched as the UK economy walks the tightrope between controlling prices and nurturing fragile growth.
