The Bank of England (BoE) left its interest rate unchanged at 5.25% on Thursday, as expected, citing falling inflation but still above its target and suggesting that monetary easing is approaching.
We are not yet at the point where we can lower interest rates, but things are moving in the right direction, BoE Governor Andrew Bailey said in a statement attached to the decision.
In recent weeks we have seen more encouraging signs that inflation is falling in the UK, he said, adding that we need to be sure that inflation falls below our 2% target and stays there.
Eight of the members of the monetary policy committee voted in favor of maintaining the key rate at 5.25%, its highest level since 2008. Only one spoke in favor of a reduction, as in the previous decision. monary.
Inflation in the United Kingdom fell to 3.4% year-on-year in February, the lowest since September 2021 and down sharply since its peak of more than 11% at the end of 2022, but it remains the highest in the G7.
The monetary institution still hopes that inflation will fall back to its 2% target in the second quarter. During its February meeting, it estimated that it would return more sustainably at the end of 2026.
Restrictive monetary policy weighs on economic activity, cools the labor market, and lowers inflationary pressures, noted the BoE in its minutes.
However, she believes that monetary policy must remain sufficiently restrictive for long enough in order to sustainably bring inflation back to the 2% target.
While UK wage growth remains high, it has slowed, and despite conflict in the Middle East and continued disruption to shipping in the Red Sea, there has been little change. in terms of energy prices since the last meeting in February, notes the BoE.
In September, the British central bank ended its series of 14 consecutive tightenings, and opted for the status quo in its last four decisions.
Ahead of the BoE’s decision, the market was therefore considering a first rate cut from the BoE in June, noted Kathleen Brooks, analyst at XTB.
Around 12:15 GMT (1:15 p.m. Paris), the British currency declined against the greenback by 0.37% to 1.2737 dollars, only slightly accelerating its losses compared to the start of European exchanges.