MercoPress. South Atlantic News Agency

Bank of England confirms restrictive monetary policy: keeps rates unchanged

Twelve-month CPI inflation fell to 3.4% in February from 4.0% in January and December, a little below the expectation in the February Monetary Policy Report

As decided by the US Federal Reserve, the Bank of England Monetary Policy Committee, (MPC) at its meeting ending on 20 March 2024, voted by a majority of 8–1 to maintain Bank Rate at 5.25%. One member preferred to reduce Bank Rate by 0.25 percentage points, to 5%.

 Since the MPC’s previous meeting, market-implied paths for advanced economy policy rates have shifted up. In the United States and the Euro area, inflationary pressures have continued to abate, though by slightly less than expected. Material risks remain, notably from developments in the Middle East including disruption to shipping through the Red Sea.

Having declined through the second half of last year, UK GDP and market sector output are expected to start growing again during the first half of this year. Business surveys remain consistent with an improving outlook for activity.

The fiscal measures in Spring Budget 2024 are likely to increase the level of GDP by around ¼% over coming years. As the measures will probably also boost potential supply to some extent, the implications for the output gap, and hence inflationary pressures in the economy, are likely to be smaller.

Reflecting uncertainties around the ONS’s Labour Force Survey, the Committee is continuing to consider a wide range of indicators of labor market activity. The labor market has continued to loosen but remains relatively tight by historical standards. Although still elevated, nominal wage growth has moderated across a number of measures. Contacts of the Bank’s Agents continue to expect some decline in pay settlements this year and to report greater difficulty in passing on cost increases to prices.

Twelve-month CPI inflation fell to 3.4% in February from 4.0% in January and December, a little below the expectation in the February Monetary Policy Report. Services consumer price inflation has declined but remains elevated, at 6.1% in February. Most indicators of short-term inflation expectations have continued to ease.

CPI inflation is projected to fall to slightly below the 2% target in 2024 Q2, marginally weaker than previously expected owing to the freeze in fuel duty announced in the Budget. In the February Report projection, CPI inflation was expected to increase slightly again in Q3 and Q4, accounted for by the direct energy price contribution to 12-month inflation. Services price inflation is expected to fall back gradually.

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.