May 9 (Reuters) – The Bank of England (BoE) left its key interest rate unchanged on Thursday but expressed confidence in the inflation outlook, with its governor, Andrew Bailey, signaling that rates would likely fall shortly.
“It is likely that we will cut rates in the coming quarters, perhaps more than the markets expect,” Andrew Bailey said during a press conference.
“Let’s be clear: a rate cut in June is neither ruled out nor set in stone,” the governor clarified.
The central bank maintained its main key rate at 5.25% on Thursday, its highest level in 15 years, with 7 members of the Monetary Policy Council having voted in favor of maintaining rates compared to 2 in favor of lowering rates to 5%.
“We need more evidence that inflation will remain low before we can cut rates. I am confident that things are moving in the right direction,” Andrew Bailey was quoted as saying in the BoE statement.
The central bank added a line to its monetary policy statement specifying that the institution will closely monitor future data releases “to understand whether the risks of persistent inflation are diminishing.”
“On this basis, the Monetary Policy Committee will decide how long rates should be maintained at their current levels,” summarizes the central bank.
SCREENINGS
In its updated economic projections, the BoE forecasts a decline in inflation to 2.6% in a year, compared to 2.8% projected in February.
In two years, inflation would fall to 1.9%, compared to 2.3% previously expected, and to 1.6% in three years, compared to 1.9% forecast in February.
Growth projections for the United Kingdom have been revised slightly upwards, to 0.5% in 2024 compared to 0.25% expected in February.
This new data will encourage operators to bet on future rate cuts from the BoE, with money markets estimating around 50% the probability that the institution will ease its policy during its next meeting in June.
The pound sterling fell after the BoE announcement and lost up to 0.4% against the dollar, hitting a two-week low of 1.2446. At 12:40 GMT, the pound erased its losses and reached $1.2505.
The FTSE increased by 0.4% and reached a record during the session, at 8,394.01 points. (Written by William Schomberg, edited by Corentin Chappron, edited by Tangi Salaün)
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