Bank of England interest rate decision

Commenting on the interest rate decision today from the Bank of England, Chris Arcari, Head of Capital Markets, Hymans Robertson said:

“The Bank of England (BoE) was hesitant to cut rates last time – its decision to do so in December was by a narrow 5:4 vote. Even when evidence pointed to softening growth and a weakening labour market, inflation and wage-growth projections were too high to be consistent with the BoE’s target of 2% pa inflation over the medium term.

“The data since then will have made the BoE even more hesitant to cut: the latest inflation and growth releases have both surprised to the upside, with recent survey data suggesting that growth is reaccelerating as budget uncertainty moves further into the rear-view mirror. This will have refocused the MPC on its core mandate: inflation.

“Inflation is expected to remain above 3% until April, when cuts to green levies should lead to a sharp reduction in headline measures. This, and its impact on consumer inflation expectations, might allow the BoE to deliver another rate cut.

“Regardless, interest rates look only modestly restrictive and appear close to neutral – a level that neither stimulates nor constrains activity. We wouldn’t expect more than one further 0.25% pa cut in 2026 unless growth and inflation slow a lot more than forecast.”

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