The Bank of England left interest unchanged at a 15-year high on Thursday but there was ’dovish’ twist to the voting make-up, as two members of the Monetary Policy Committee dropped their call for rates to rise.
At its March meeting, the BoE kept the benchmark bank rate at 5.25%. It is the fifth successive hold, following one in September, which ended a streak of 14 consecutive hikes since December 2021, and three more in November, December and February. The BoE had rapidly increased bank rate from a Covid-19-induced low of 0.10%.
But there was a marked shift in the voting pattern with eight members of the MPC voting to leave interest rates unchanged with hawks Jonathan Haskel and Catherine Mann no longer recommending rates be increased.
Andrew Bailey, Sarah Breeden, Ben Broadbent, Megan Greene, Jonathan Haskel, Catherine Mann, Huw Pill and Dave Ramsden voted to leave interest rates unchanged. Swati Dhingra dissented, sticking to her view that rates should be cut by 25 basis points to 5%.
At the February meeting, six members of the MPC voted to keep interest rates unchanged.
Jonathan Haskel and Catherine Mann pressed the case for rates to be increased by 25 basis points, while Swati Dhingra suggested a 25bps cut, meaning a two-six-one division.
In a statement, the BoE said: ‘Monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term in line with the MPC‘s remit. The Committee has judged since last autumn that monetary policy needs to be restrictive for an extended period of time until the risk of inflation becoming embedded above the 2% target dissipates.’
The BoE acknowledged that headline CPI inflation has continued to fall back ‘relatively sharply’ with the ‘restrictive stance’ of monetary policy weighing on activity.
‘Nonetheless, key indicators of inflation persistence remain elevated,’ it said.
The pound bought $1.2630 shortly after the decision, down from $1.2753 beforehand.
On Wednesday, figures from the Office for National Statistics showed the consumer price index rose 3.4% in February from a year before, having increased 4.0% annually in January.
UK inflation had been expected to decelerate to 3.6%, according to FXStreet-cited market consensus.
Core inflation, which excludes food and energy, slowed to 4.5% in February from 5.1% previously. Analysts had predicted a reading of 4.6%.
The UK inflation rate hit a recent peak of 11.1% in October 2022. The Bank of England has a 2% inflation target, with the current rate still significantly higher than that.
The BoE’s interest rate decision follows the US Federal Reserve’s on Wednesday.
The Fed left interest rates unmoved, as expected, while its latest set of projections still suggest three cuts will be in the offing this year. The central bank’s federal funds rate range was unchanged at 5.25%-5.50%.
‘The committee judges that the risks to achieving its employment and inflation goals are moving into better balance. The economic outlook is uncertain, and the committee remains highly attentive to inflation risks,’ the Fed said.
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