The Bank of
England (BoE) announced on Thursday its Monetary Policy Committee (MPC) voted
by a majority of 5-4 to cut the Bank Rate from 4.50 per cent to
4.25 per cent at its May meeting. Meanwhile, two MPC members preferred to lower the benchmark rate by 50 basis points, and two members preferred to maintain it
at 4.50 per cent. Today’s decision was in line with markets’ anticipations.
In its policy statement,
the BoE notes:
- Today’s decision to reduce Bank Rate to 4.25% reflects
continued progress in disinflation though with risks to inflation remaining in
both directions;
- There
has been substantial progress on disinflation over the past two years, which allowed
the MPC to withdraw gradually some degree of policy restraint, while
maintaining Bank Rate in restrictive territory so as to continue to squeeze out
persistent inflationary pressures;
- Underlying
UK GDP growth is judged to have slowed since the middle of 2024, and the labour
market has continued to loosen;
- Progress
on disinflation in domestic price and wage pressures is generally continuing;
- Although
indicators of pay growth remain elevated, a significant slowing is still
expected over the rest of the year;
- Previous
increases in energy prices are still likely to drive up CPI inflation from
April onwards, to 3.5% for Q3. Inflation is expected to fall back thereafter;
- Uncertainty
surrounding global trade policies has intensified since the imposition of
tariffs by the United States and the measures taken in response by some of its
trading partners;
- Prospects
for global growth have weakened as a result of this uncertainty and new tariff
announcements, although the negative impacts on UK growth and inflation are
likely to be smaller;
- Monetary policy is not on a pre-set path;
- MPC will remain sensitive to heightened unpredictability
in the economic environment and will continue to update its assessment of risks;
- A gradual and careful approach to the further withdrawal
of monetary policy restraint remains appropriate;
- MPC
will continue to monitor closely the risks of inflation persistence and what
the evidence may reveal about the balance between aggregate supply and demand
in the economy;
- Monetary policy will need to continue to remain
restrictive for sufficiently long until the risks to inflation returning
sustainably to the 2% target in the medium term have dissipated further;
- MPC
will decide the appropriate degree of monetary policy restrictiveness at each
meeting