Stay informed with free updates
Simply sign up to the UK interest rates myFT Digest — delivered directly to your inbox.
The Bank of England signalled it would cut rates this summer if inflation stays low, even as it kept borrowing costs at a 16-year high.
The BoE’s Monetary Policy Committee voted by seven to two to keep the benchmark rate at 5.25 per cent on Thursday, with deputy governor Sir Dave Ramsden joining external member Swati Dhingra in voting for an immediate cut.
But Andrew Bailey, the bank’s governor, opened the door to a downward move as soon as the June MPC meeting.
He said there had been “encouraging news” on inflation and that it would fall close to the bank’s 2 per cent target in the next couple of months, but added that the BoE was not yet ready to act.
“We need to see more evidence that inflation will stay low before we can cut interest rates,” Bailey said. “I’m optimistic that things are moving in the right direction.”
Sterling slid 0.4 per cent against the dollar to $1.2449 as the bank signalled it was closer to easing policy.
Economists polled by Reuters had forecast only one vote for a cut.
The bank also hinted it could cut rates as soon as next month if inflation falls in line with its forecasts.
In new language, it said the MPC would “consider forthcoming data releases” — a reference to inflation and jobs figures — in determining whether “the risks from inflation persistence are receding”.
The data is set to be published ahead of the MPC’s next meeting on June 20. Its following meeting is in early August.
The timing of the first BoE rate cut in four years has taken on huge political resonance ahead of the general election expected this year. Prime Minister Rishi Sunak is seeking to convince voters that the UK has turned a corner from the cost of living crisis.
However, the central bank is wary of jumping too soon given its hard-won fight to get inflation from double-digit levels to the current 3.2 per cent rate.
Minutes of this week’s meeting also indicated the remaining divisions within the MPC, noting a “range of views” on how persistent inflation is likely to be and how much evidence is needed for a rate cut.
The MPC said that services price inflation remains “elevated” at 6 per cent and that “considerable uncertainty” over official jobs statistics makes it difficult to gauge the evolution of the labour market.
Interest rate sensitive two-year gilt yields nudged down 0.03 percentage points to 4.28 per cent. The FTSE 100 index of blue-chip stocks rose 0.4 per cent on hopes of rate cuts this summer.
This is a developing story
Read the full article here
