(Alliance News) - The Bank of England on Thursday moved a step nearer to a summer interest rate cut, but would not commit on whether this would come as soon as June.
"The progress we are seeing in the key economic data is encouraging, but we are not yet at the point of cutting interest rates. We need to see more evidence that inflation will stay low before we can do that," the BoE said.
At its May meeting, the BoE's Monetary Policy Committee voted by a majority of 7 to 2 to maintain bank rate at 5.25%. Two members preferred to reduce bank rate by 0.25 percentage points, to 5.00%.
Seven members, Bank of England Governor Andrew Bailey, Sarah Breeden, Ben Broadbent, Megan Greene, Jonathan Haskel, Catherine Mann and Huw Pill voted in favour of the status quo.
Swati Dhingra and BoE Deputy Governor Dave Ramsden voted for a cut. At the March meeting, only Dhingra had recommended a rate cut.
At a press conference following the decision, BoE Governor Andrew Bailey said "we are not yet at a point where we can cut bank rate".
"We will consider the forthcoming data releases as part of our assessment of for how long bank rate should be maintained at its current level," the governor added.
Bailey said the BoE will likely need to cut rates "over the coming quarters" and more so than markets currently expect.
But that doesn't mean a June cut is "ruled out or a fait accompli".
Bailey said there will always be some ups and down in the data. But more data will help the BoE judge when to withdraw its restrictive stance, he said, noting there are two inflation readings between now and June, when the next interest rate call will be made.
Bailey said that second-round inflation effects are set to fade slightly more quickly than policymakers had previously thought.
He also stressed the BoE could cut rates before the US Federal Reserve, noting there was "no law" which says the Fed must move first.
Bailey noted inflation dynamics in the UK were different to the US.
In its statement, the BoE said the restrictive stance of monetary policy is weighing on activity in the real economy, is leading to a looser labour market and is bearing down on inflationary pressures. Key indicators of inflation persistence are moderating broadly as expected, although they remain elevated.
The BoE said monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2% target.
In its guidance, the BoE added a new section saying it "will consider forthcoming data releases and how these inform the assessment that the risks from inflation persistence are receding".
The BoE said updated forecasts show consumer price inflation returning to close to the 2% target in the near term, but to increase slightly in the second half of this year, to around 2.5%, owing to the unwinding of energy-related base effects.
Consumer price inflation is projected to be 1.9% in two years' time and 1.6% in three years in the May report.
UK GDP is expected to have risen by 0.4% in the first quarter of 2024 and to grow by 0.2% in the second quarter. Despite picking up during the forecast period, demand growth is expected to remain weaker than potential supply growth throughout most of that period.
By Jeremy Cutler, Alliance News reporter
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