The Bank of
England (BoE) reported on Thursday its Monetary Policy Committee (MPC) voted by
a majority of 5-4 to decrease the Bank Rate from 5.25 per cent to
5.00 per cent at its August meeting. This was the first rate reduction since the
pandemic. Meanwhile, four MPC members preferred to keep the benchmark rate
unchanged.
Market
participants had been split on whether the BoE would opt for a hold or approve a
25-basis-point rate cut.
In its policy statement,
the BoE notes:
- CPI inflation
is expected to increase to around 2.75% in the second half of this year;
- GDP has
picked up quite sharply so far this year, but underlying momentum appears
weaker;
- MPC expects
the fall in headline inflation, and normalisation in many indicators of
inflation expectations, to continue;
- Domestic
inflationary persistence is expected to fade away over the next few years;
- There is a
risk that inflationary pressures from second-round effects will prove more
enduring in the medium term;
- It is now appropriate to reduce slightly the degree of
policy restrictiveness;
- Restrictive
stance of monetary policy continues to weigh on activity in the real economy,
leading to a looser labour market and bearing down on inflationary pressures;
- Monetary
policy will need to continue to remain restrictive for sufficiently long until
the risks to inflation returning sustainably to the 2% target in the medium
term have dissipated further
- MPC continues to monitor closely the risks of inflation
persistence and will decide the appropriate degree of monetary policy restrictiveness
at each meeting