The Bank of England chose to keep interest rates unchanged at 5.25%, the sixth consecutive meeting at the highest level in 16 years.
However, there are signs from the central bank indicating a possible shift towards a rate cut, possibly as early as June.
Andrew Bailey, Governor of the Bank of England, hinted at the possibility of a rate cut in the near future, pointing to further positive developments in inflation trends. Dave Ramsden, Deputy Governor, joined by Swati Dhingra, an external member of the Monetary Policy Committee, voted in favor of a 0.25 percentage point rate cut, citing a strong downward trajectory in inflation.
Although the decision to keep interest rates stable was taken at this meeting, the MPC emphasized that if incoming economic data continues to support the trend of lower inflation, a cut in interest rates could be considered at the June or August meetings. The move could provide relief to homeowners and stimulate demand in the housing market.
Speculation surrounding the bank's rate-cutting strategy has affected mortgage interest rates, with expectations indicating that the bank may cut interest rates twice this year, each in quarter-point increments. Prime Minister Rishi Sunak is counting on the gradual reduction in interest rates to support the Conservative Party's general election campaign scheduled for the fall.
The Bank of England initially raised interest rates significantly in response to rising levels of inflation, reaching a peak of 11.1% in October 2022. However, inflation has since fallen to 3.2%, prompting consideration of adjusting interest rates.
While the bank remains cautious, awaiting further evidence of persistently low inflation before implementing interest rate cuts, there is optimism that inflation will move closer to the 2% target in the coming months. However, the downward pressure on inflation resulting from lower energy costs is expected to diminish over time.
Despite potential interest rate cuts, the bank stressed the need for restrictive monetary policy to ensure long-term inflation stability. Forecasts for the UK economy point to modest growth in GDP, with unemployment expected to rise to a peak of 4.9%.
In the end, seven members of the Monetary Policy Committee, including Bailey, Bell and Broadbent, voted to maintain the UK policy rate at 5.25%, underscoring the bank's cautious approach amid evolving economic conditions.