UK borrowers may have to wait a while longer for a slash in interest rates, as financial experts imply the Bank of England isn’t quite prepared to sanction a cut.
The Monetary Policy Committee (MPC) at the bank, which is in charge of determining UK interest rates, is predicted to retain the current 5.25 percent rate in their upcoming Thursday announcement – a figure that has remained constant since August of the previous year.
This implies those holding out for lower borrowing costs might be under prolonged strain. At the MPC meeting in March, only Swati Dhingra opted for a decrease of 0.25 percentage points, with the rest of the eight members choosing to maintain status quo.
In the words of Investec’s chief economist Philip Shaw, “This broad direction illustrates that collectively the committee is moving gradually towards a rate cut.”
Nonetheless, he thinks it’s doubtful that any steps will be undertaken this time and predicts the Bank rate will remain at 5.25% for the sixth consecutive meeting, reports the Mirror.
Mr Shaw also hinted at the prospect of an additional MPC member shifting towards the “easing camp” and supporting a rate reduction this Thursday. Interest rates serve as a tool to regulate UK inflation, which has experienced a notable dip from the peak levels reached in 2022 amidst skyrocketing energy prices and the height of the cost-of-living crunch.
The latest figures from the Office for National Statistics have shown a dip in the Consumer Prices Index (CPI) inflation to 3.2% in March, yet experts warn that two critical economic indicators pay growth and services sector inflation are proving more resistant than expected.
Despite a general downward trend, last month’s data revealed that average wages are still outpacing inflation. Oxford Economics’ lead UK economist Andrew Goodwin commented: “The data published in mid-April for services inflation and private sector regular pay growth has likely extinguished any remaining hopes of a move in May.”
Goodwin further noted that while both metrics are on a downward trajectory, they’re not falling as fast as the Monetary Policy Committee (MPC) had hoped, hovering just above the projections made in February’s Monetary Policy Report. He posited that it will be a “close call” whether the MPC opts for an interest rate cut in June or waits until August.
Philip Shaw from Investec is forecasting CPI inflation to hit the Bank of England’s two percent target by May, potentially leading the MPC to reduce interest rates to five percent at their June meeting. Similarly, HSBC economists are eyeing June for the first rate reduction.
The Bank of England is poised to shed more light on its economic forecasts and the trajectory of interest rates with the upcoming release of its latest Monetary Policy Report, coinciding with the rates decision this Thursday. In a related development, the US Federal Reserve has opted to keep its principal interest rate steady, announced on Wednesday.
The Fed’s decision comes amidst a “lack of further progress” in curbing inflation, suggesting that elevated rates could persist until there is clearer indication of price growth decelerating, as suggested by Chairman Jerome Powell.
