Source Credit : CNBC
The Bank of England kept its key interest rate on hold at 4.25% during its Thursday meeting, with economists expecting the central bank to wait until August before it cuts again.
Six out of nine of the BOE’s monetary policy committee opted to hold rates with three opting for a 25-basis-points cut.
“Underlying UK GDP [gross domestic product] growth appears to have remained weak, and the labour market has continued to loosen, leading to clearer signs that a margin of slack has opened up over time,” the central bank said in a statement.
“Measures of pay growth have continued to moderate and, as in May, the Committee expects a significant slowing over the rest of the year,” it said, adding that the MPC “remains vigilant about the extent to which easing pay pressures will feed through to consumer price inflation.”
The central bank warned that “global uncertainty remains elevated” with energy prices rising due to the escalation of the conflict in the Middle East. “The Committee will remain sensitive to heightened unpredictability in the economic and geopolitical environment, and will continue to update its assessment of risks to the economy,” it added.
There remain two-sided risks to inflation, the central bank concluded, noting that “given the outlook, and continued disinflation, a gradual and careful approach to the further withdrawal of monetary policy restraint remains appropriate.”
“Monetary policy is not on a pre-set path,” it flagged, in a likely signal to markets and investors to moderate rate cut expectations.
The central bank’s decision was slightly more dovish than expected, Daniel Mahoney, U.K. economist at Handelsbanken, told CNBC.
“I think most people in the markets thought there would be a 7-2 [split among MPC members] so I think that’s interesting, but I think those three members [opting for a cut] are obviously focusing on some of those domestic indicators,” he told CNBC’s “Decision Time” on Thursday.
“That is very much talking to those geopolitical uncertainties. If oil prices go up further, that could potentially mean northwards of a 4% headline rate of inflation, so I think if you maybe got to $85 a barrel and we stuck there, you might hit that [inflation] point ... then you could see a hawkish pivot from the MPC,” he said.
