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United Kingdom Monetary Policy May 2024

United Kingdom: Bank of England maintains rates in May

At its meeting on 9 May, the Bank of England’s Monetary Policy Committee (MPC) voted by a majority to maintain the Bank Rate at 5.25%, with two members preferring a reduction to 5.00%.

The decision not to cut rates in May was due to headline and core inflation remaining above the Bank’s 2.0% target in recent months, as well as a still-tight labor market by historical standards. On the flipside, further rate hikes were not warranted given that inflation should return close to the 2% target in the near term.

The Bank reiterated that monetary policy “needs to be restrictive for an extended period of time” in order to tame inflation, but made clear that the next policy change would be a rate cut rather than a rate hike. Most panelists see the Bank waiting until Q3 to begin loosening its monetary policy. Several see rate cuts as soon as the June meeting, though the likelihood of a June cut has faded due to the recent announcement of a general election on 4 July and April’s higher-than-expected inflation.

On the outlook, Goldman Sachs’ analysts said:

“Recent BoE commentary—including by Governor Bailey, Deputy Governor Broadbent and Chief Economist Pill—pointed to a summer rate cut if the data come in broadly as expected. The strong April CPI release, however, makes a June cut unlikely. We therefore now look for the first cut in August, which will provide two more rounds of inflation and labour market data, which we expect to show renewed inflation progress.”

Berenberg analysts took a similar view:

“At the margin, the election which prime minister Rishi Sunak has called for 4 July also argues against a move on 20 June, which could be (mis-) construed as an attempt to help the current government. In line with our long-held call, the BoE will probably wait until it presents new economic projections on 1 August before it starts to gradually lower its bank rate.”

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