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United Kingdom Monetary Policy June 2024

United Kingdom: Bank of England maintains rates in June

At its meeting on 19 June, 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 June was likely influenced by stronger-than-expected economic activity so far this year, a still-tight labor market by historical standards and sticky services inflation, which clocked 5.7% in May. On the flipside, further rate hikes were not warranted given moderating short-term inflation expectations and that headline inflation returned to the 2% target in May.

On the outlook, the Bank said that monetary policy needs to “remain restrictive for sufficiently long to return inflation to the 2% target sustainably”. All panelists see the Bank starting to cut rates in Q3, with between 50 and 150 basis points of cuts seen by end-2024.

On the outlook, Nomura analysts said:

“The MPC left official guidance broadly unchanged […] with respect to policy weighing on activity, inflation persistence moderating but still elevated, and the need to keep rates restrictive for sufficiently long/extended period, and as in the May meeting, its vote split was 7-2. Nonetheless, there were some clearly dovish adjustments to the Bank’s comments, which gives us increasing confidence in our call for an initial 25bp cut on 1 August.”

United Overseas Bank analysts took a similar view:

“There were dovish elements in the accompanying statement which financial markets took as a signal that the BOE was willing to cut in coming months. At this juncture, we are still leaning towards a 1 Aug start date for the BOE to deliver its first rate cut, but we acknowledge that our view remains highly uncertain and data-dependent.”

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