Opts not to cut rate by 0.25 percentage points

The Bank of England has voted to maintain its benchmark interest rate at 5.25 per cent, as opposed to reducing it by 0.25 percentage points

The bank’s Monetary Policy Committee (MPC), which took the decision at its monthly meeting ended May 8, believes that the bank rate will help sustain growth and employment, and ultimately meet the 2 per cent inflation target.

The May Monetary Policy Report by the MPC contains its updated estimates, projected for activity and inflation.

It is anticipated that demand growth for the United Kingdom remain weaker in comparison to the possible supply growth, even if it will pick up over that time.

It is expected that a margin of economic slack would manifest in 2024 and 2025 and persist subsequently, partly attributable to the monetary policy’s ongoing restrictive stance.

Inflation persistence

In terms of indices of inflation persistence, the United Kingdom’s consumer price inflation for services has decreased but is still high, standing at 6.0 per cent in March.

A significant amount of ambiguity surrounds the numbers obtained from Britain’s Office of National Statistics (ONS) Labour Force Survey.

This makes it more challenging to predict how the labor market will change. Based on a wide range of data, the MPC determines that although the labor market is still relatively tight by historical standards, it is nonetheless continuing to loosen.

In the three months leading up to February, the annual average weekly earnings growth in the private sector fell to 6.0 per cent, despite the volatility of the series. Other statistics also point to a slowdown in pay growth.

CPI readings

As it relates to the twelve-month CPI inflation, there was a 0.2 per cent decrease from the months of February (3.4 per cent) to March (3.2 per cent). However, it is expected that to return close to the 2 per cent target in the near term and to also increase slightly throughout the second half of the year to around 2.5 per cent.

The MPC has reassured its commitment to always maintaining the inflation target of 2 per cent. However, the current restrictive monetary policy stance is dampening activity in the real economy, resulting in a looser labour market, and mitigating inflationary pressures.