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Bank of England maintains policy rate at 5.25%

Bank of England maintains policy rate at 5.25%
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June 20, 2024 (MLN): The Bank of England on Thursday decided to keep interest rates unchanged at 5.25%, said a statement issued by the bank.

The Monetary Policy Committee (MPC) voted by a majority of 7–2 to maintain Bank Rate. Two members preferred to reduce Bank Rate by 0.25 percentage points, to 5%.

Twelve-month CPI inflation fell to 2.0% in May from 3.2% in March, close to the May Monetary Policy Report projection.

Indicators of short-term inflation expectations have also continued to moderate, particularly for households, it noted.

The Committee expects the CPI inflation to rise slightly in the second half of this year, as declines in energy prices last year fall out of the annual comparison.

UK GDP appears to have grown more strongly than expected during the first half of this year, it stated.

Business surveys, however, remain consistent with a slower pace of underlying growth, of around ¼% per quarter.

The considerable uncertainty around estimates derived from the ONS Labour Force Survey means that it is very difficult to gauge the evolution of labour market activity, it noted.

Based on a broad set of indicators, the MPC judges that the labour market continues to loosen but that it remains relatively tight by historical standards, the statement reads.

The collective steer from a range of indicators of aggregate pay growth has continued to ease in the latest data, it added.

Services consumer price inflation was 5.7% in May, down from 6.0% in March, but somewhat higher than projected in the May Report.

This strength in part reflected prices that are index-linked or regulated, which are typically changed only annually, and volatile components, it further noted.

The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework, the statement reads.

The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances, it said.

Monetary policy will ensure that CPI inflation returns to the 2% target sustainably in the medium term.

At this meeting, the Committee voted to maintain Bank Rate at 5.25%. Headline CPI inflation has fallen back to the 2% target.

The restrictive stance of monetary policy is weighing on activity in the real economy, is leading to a looser labour market and is bearing down on inflationary pressures.

Key indicators of inflation persistence have continued to moderate, although they remain elevated.

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,” it reads.

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.

IT said that the MPC remains prepared to adjust monetary policy as warranted by economic data to return inflation to the 2% target sustainably.

It will therefore continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation.

As part of the August forecast round, members of the Committee will consider all of the information available and how this affects the assessment that the risks from inflation persistence are receding.

On that basis, the Committee will keep under review for how long Bank Rate should be maintained at its current level.

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Posted on: 2024-06-20T20:11:00+05:00