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United Kingdom Monetary Policy March 2024

United Kingdom: Bank of England keeps rates unchanged in March

On 21 March, the Bank of England (BOE) left the bank rate at 5.25%, following 515 basis points of hikes since late 2021 through to August 2023. Market analysts were expecting a hold.

The decision not to hike further was driven by sustained falls in headline and core inflation in recent months. Moreover, the Bank highlighted easing wage growth and a looser labor market. On the flipside, with headline inflation still above 3.0% and core inflation still over double the Bank’s 2.0% target, it was premature to begin cutting rates.

In its communiqué, the Bank reiterated that monetary policy would “need to be restrictive for an extended period of time”, but hinted that the next policy change would be a rate cut rather than a rate hike. This is aligned with our panelists, none of whom see more monetary tightening. Our Consensus is for the bank rate to decline by close to 90 basis points from its current level by end-2024, and there is a 175 basis-point spread among panelists over the level of the end-2024 bank rate. Some panelists see rate cuts in Q2, with virtually all expecting cuts by Q3.

On the outlook, Berenberg’s Kallum Pickering said:

“Policymakers are becoming increasingly confident that they have mostly tamed the 2022-23 inflation surge and are now looking to reduce the monetary headwind. […]. We continue to look for five 25bp cuts in 2024, with a first cut in June, to take the year-end rate to 4.0%.”

In contrast, UniCredit’s Daniel Vernazza expects monetary easing to begin later:

“The eight-strong majority on the MPC said they require further evidence that inflation is moving down to 2% on a sustained basis before they can cut the bank rate. All these members agreed that key indicators of inflation persistence, from the labor market, wages and services inflation, “remained elevated”. We now expect the first rate cut in August (previously September) while continuing to see a total of 75bp of cuts this year.”

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