(Alliance News) - The Bank of England on Thursday touted progress in tackling inflation, as it enacted a quarter-point cut to interest rates - a first since the pandemic.
At its August meeting, the BoE's Monetary Policy Committee voted 5-4 to cut bank rate by 25 basis points to 5.00%. In its previous seven meetings, it had voted to keep bank rate at the 16-year high of 5.25%.
MPC members Swati Dhingra and Dave Ramsden voted once again for a rate cut. This meeting, they were joined by the bank's Governor Andrew Bailey, and Deputy Governors Sarah Breeden and Clare Lombardelli - who recently replaced Ben Broadbent.
Jonathan Haskel, Catherine Mann, Huw Pill and Megan Greene voted to keep rates unchanged.
The decision had been expected by the market. However, confidence that a rate cut would come wavered somewhat following June's inflation data, which showed stubbornly above-target services inflation.
However, the headline yearly consumer price index met the MPC's 2% target in both May and June, the BoE noted.
"The Committee expects the fall in headline inflation, and normalisation in many indicators of inflation expectations, to continue to feed through to weaker pay and price-setting dynamics. A margin of slack should emerge in the economy as GDP falls below potential and the labour market eases further," the monetary policy statement read.
"Domestic inflationary persistence is expected to fade away over the next few years, owing to the restrictive stance of monetary policy."
Today's decision makes the first cut since March 2020. It reduced rates by 15 basis points to 0.10% in a scheduled meeting that month, but that followed a 50 basis point cut in a "special" meeting a week earlier, as part of Threadneedle Street's response to the Covid-19 pandemic.
Since that second March 2020 cut, it had enacted 515 basis points worth of hikes, lifting off in December 2021, in a bid to tame inflation.
The pound was trading at USD1.2777 shortly before the announcement, moving down to USD1.2760 shortly afterwards.
The BoE said it "will not cut rates too much or too quickly".
"Today's decision was finely balanced. We will need to make sure inflation stays low in the years to come," it said.
The BoE also provided updated economic forecasts, released each quarter.
The BoE said updated forecasts show CPI inflation increasing slightly in the second half of this year, to around 2.75%, owing to the unwinding of energy-related base effects. Its May forecast had expected a rise to 2.5% in the second half.
However, it now expects CPI inflation to retreat back to 1.7% in two years' time and 1.5% in three years, down from its May estimates of 1.9% and 1.6% respectively.
By Elizabeth Winter, Alliance News deputy news editor, Global services
Comments and questions to newsroom@alliancenews.com
Copyright 2024 Alliance News Ltd. All Rights Reserved.
.jpg)
