At its meeting ending on May 8, 2024, the Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 7–2 to maintain Bank Rate at 5.25%. Two members preferred to reduce Bank Rate by 0.25 percentage points, to 5%. Bank of England’s aims to meet the 2% inflation target.
“A member of the MPC, Deputy Governor Ramsden, voting for an immediate rate reduction, joining external member Dhingra in such a dovish dissent. Dissent from an internal member, however, is rather rare, and should be taken as a strong signal that the BoE are ready to cut rates, soon. Furthermore, Governor Bailey noted his ‘optimism’ that things are moving in the right direction, while the latest inflation forecasts point towards the 2% CPI target being achieved in the second quarter of this year,” says Michael Brown Senior Research Strategist at Pepperstone.
The Committee’s updated projections for activity and inflation are set out in the accompanying May Monetary Policy Report and are conditioned on a market-implied path for Bank Rate that declines from 5¼% to 3¾% by the end of the forecast period, compared with an endpoint of 3¼% in February.
Internationally, recent growth outturns have tended to be stronger in the United States than in the euro area. Underlying inflationary pressures in both regions have continued to moderate somewhat since the start of the year, though by less than expected in the United States. Forward interest rates have risen in the United States and, as a result, elsewhere.
Following modest weakness last year, UK GDP is expected to have risen by 0.4% in 2024 Q1 and to grow by 0.2% in Q2. Despite picking up during the forecast period, demand growth is expected to remain weaker than potential supply growth throughout most of that period. A margin of economic slack is projected to emerge during 2024 and 2025 and to remain thereafter, in part reflecting the continued restrictive stance of monetary policy.
“The FTSE 100, meanwhile, has printed a new intraday record high, as the love for UK equities continues, and today’s dovish rhetoric provides a further fillip to risk appetite in the London market,” adds Michael.
Twelve-month CPI inflation fell to 3.2% in March from 3.4% in February. CPI inflation is expected to return to close to the 2% target in the near term, but to increase slightly in the second half of this year, to around 2½%, owing to the unwinding of energy-related base effects. There continue to be upside risks to the near-term inflation outlook from geopolitical factors, although developments in the Middle East have had a limited impact on oil prices so far.