Economic Review – June 2024
Prospect of rate cut moves closer.
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While last month once again saw the
Bank of England (BoE) leave interest
rates unchanged at a 16-year high, the
minutes to the Bank’s Monetary Policy
Committee (MPC) meeting signalled a
notable change in tone and economists
now view a rate cut as the most likely
outcome when the MPC next convenes.
At its latest meeting, which concluded
on 19 June, the MPC voted by a 7–2 majority
to maintain Bank Rate at 5.25%. For the
second month running, the two dissenting
voices both called for an immediate
quarter-point reduction while, for the first
time, some other members described their
thinking as being “finely balanced.”
The minutes to the meeting also highlighted
this potentially significant shift in
stance, noting that the MPC will now be
looking at whether ‘the risks from inflation
persistence are receding.’ The minutes
concluded, ‘On that basis, the Committee
will keep under review for how long Bank
Rate should be maintained at its current
level.’
Last month’s inflation statistics published
by the Office for National Statistics
(ONS) prior to the MPC announcement,
revealed that the headline rate has now
returned to its 2% target level for the first
time in almost three years. In a statement
released alongside the MPC decision, BoE
Governor Andrew Bailey described that as
“good news.” He also said that policymakers
need to be sure inflation will remain low
and added, “that’s why we’ve decided to
hold rates for now.”
July’s release of economic data, particularly
in relation to wage growth and
services inflation, is likely to prove pivotal to
the next MPC decision which is due to be
announced on 1 August. A recent Reuters
survey, however, found that a large majority
of economists now expect an imminent
cut, with all but two of the 65 polled predicting
an August rate reduction.
