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P.ublished 9th May 2024
business

Bank Of England Has Been Too Slow To Cut Rates – But It Is Getting There

Image by Clker-Free-Vector-Images from Pixabay
Image by Clker-Free-Vector-Images from Pixabay
Responding to the Bank of England Monetary Policy Committee's decision to hold Bank Rate at 5.25%
Julian Jessop, Economics Fellow at the free market think tank, the Institute of Economic Affairs, said:

"The Monetary Policy Committee left rates on hold this week, as expected, but there are some clear signals that cuts are coming soon.

"For a start, Dave Ramsden joined Swati Dhingra in voting for an immediate cut. This means that only three of the other seven members need to switch camp.

"Moreover, the Bank lowered its medium-term inflation forecasts, with the two-year projection now slightly below the 2% target. Crucially, this forecast is based on market expectations for the path of interest rates, which assume some quite large cuts.

"Finally, the statement included some new language which emphasised the importance of the ‘forthcoming data releases’. With two sets of price and labour market releases between now and the next meeting in late June, rates could be cut next month, or in August at the latest.

"The Bank is still moving too slowly for comfort. But the MPC does at least seem to be paying more attention to developments in broad money and credit, which may now play a bigger part in decision making. Better late than never."

Anna Leach, Deputy Chief Economist, CBI, said:

"Today’s vote 7-2 to hold rates is in line with the CBI’s expectation that the MPC want to see more evidence that past falls in domestic inflationary pressure are sustainable before they’ll move to cut rates. Services inflation and wages data both suggest a cautious approach is warranted. Inflation in the services sector is triple the inflation target and average earnings growth is still running at around double the rate consistent with the inflation target.

"With the economy appearing to be moving out of recession – albeit anaemically – there is a delicate balance to be struck between managing inflationary pressures and not snuffing out a nascent recovery. It is noteworthy that the Bank judge that demand growth is going to run behind supply growth over the next couple of years. Overall, today’s release does not change our view that the first rate cut is most likely to be in August."