The Bank of England (BoE) decided to keep interest rates unchanged at their current 16-year high of 5.25%. The Monetary Policy Committee (MPC) voted 7-2 to maintain rates, with two members favouring a reduction to 5%.
This decision follows mixed economic signals. Inflation is forecast to fall below the 2% target soon, but concerns remain about a potential rebound later in the year. While the UK is expected to have emerged from recession in Q1 2024, a rate cut could weaken the pound and reignite inflation.
The BoE appears to be taking a cautious approach, prioritising inflation control for the time being. However, some policymakers are anxious about stifling economic growth with persistently high rates. The coming months will likely see the BoE closely monitoring economic data before determining future adjustments to interest rates.
Nicholas Hyett, Investment Manager at Wealth Club, commented: “The Bank of England continues to diagnose persistent inflation as the major threat facing the UK economy. However, it’s an increasingly delicate balancing act, and there’s a real risk the economic cure might end up being worse than the disease.”
The British pound fell on the announcement but has since recovered to trade at $1.2466. The euro-pound exchange rate also saw a knee-jerk reaction but has since settled.
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