Despite a significant decline in inflation to its lowest level since September 2021, the Bank of England is expected to maintain interest rates at 5.25%. This decision comes as the Monetary Policy Committee prepares for its upcoming announcement, with economists and analysts predicting a potential easing of policy rates starting in June.
The Bank of England is poised to keep interest rates steady at 5.25% despite a significant decline in inflation, which fell to 3.4% in February, marking the lowest level since September 2021. This decision is anticipated ahead of the Monetary Policy Committee’s (MPC) announcement on Thursday. The reduction in inflation has been rapid, attributed in part to a slowdown in the rate of food and non-alcoholic drink price increases, which had previously peaked at a 19.1% increase in March 2023. The current inflation figure represents the most substantial 12-month drop since 1978, from a high of 11% in October 2022.
Chancellor Jeremy Hunt has acknowledged the positive trajectory of inflation, suggesting it might lead to a relaxation in mortgage rates and hinting at possible further reductions in National Insurance. This improvement in economic conditions has fostered optimism for potential interest rate cuts in the summer. Despite one MPC member advocating for a cut in the previous month, the consensus among economists and financial analysts is that the Bank of England will hold the interest rates in their imminent decision. They posit that while immediate adjustments are unlikely, there is a shared expectation of potential easing of policy rates, possibly commencing in June, once inflation is projected to dip below the Bank’s 2% target.
The economic landscape suggests that the government’s efforts over the past year in managing inflation are beginning to yield positive results. Although the lowering inflation is a hopeful sign, uncertainties linger around the timing and scale of potential rate cuts, especially with an upcoming election. The broad consensus is one of cautious optimism, with attention focused on the MPC’s forthcoming indicators regarding possible shifts in monetary policy as the year progresses.
