The Bank of England (BOE) is anticipated to keep interest rates steady, following the lead of the Federal Reserve. With the United Kingdom’s inflation rate nearing the central bank’s target for the first time in the past two years, attention now turns to whether the BOE will consider a rate cut and when it might occur.
Strategists at Bank of America believe that this meeting will commence a gradual transition towards a cutting cycle, likely commencing in August and progressing slowly.
The BOE’s updated projections, to be released alongside the decision, will provide important clues. Inflation has fallen short of expectations since the previous estimates in November, while economic growth has been lackluster.
Despite this, inflation remains at roughly double the BOE’s 2% goal and unexpectedly rose in December. This could potentially make policymakers hesitant to loosen monetary policy in the near future. At the BOE’s meeting six weeks ago, three out of nine members of the Monetary Policy Committee expressed a preference for further rate hikes.
The benchmark rate has remained at 5.25% since August, following a series of consecutive rate increases starting in December 2021 when borrowing costs were raised from near zero. Inflation reached its peak at 11% in October 2022 and has been gradually declining since then.
On Wednesday, the Federal Reserve maintained its key interest rate at 5.25%-5.5%. Chairman Jerome Powell acknowledged the positive news of slower price increases but emphasized that inflation still remains too high and progress in lowering it is uncertain.
The European Central Bank, responsible for monetary policy in the eurozone, kept its key rate unchanged last week.
Market expectations currently suggest that the first rate cut by the Federal Reserve will occur in May, followed by reductions from the European Central Bank and the Bank of England later in the year.