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Analysts expect Bank of England will hold interest rates

8th May 24 1:43 pm

It is expected that the Bank of England (BoE) will hold interest rates on Thursday at the rate of 5.25% which will remain painful for mortgage holders.

It is expected that the monetary policy committee (MPC) will keep the rate at the 16-year high.

In March MPC member Swati Dhingra voted for a cut in interest rates by 0.25 percentage points but was out voted by the other eight members.

Investec’s chief economist Philip Shaw said, “This broad direction illustrates that collectively the committee is moving gradually towards a rate cut.”

Last month the BoE deputy governor Dave Ramsden said, “Over the last few months I have become more confident in the evidence that risks to persistence in domestic inflation pressures are receding, helped by improved inflation dynamics.”

Steve Matthews, investment director at Canada Life Asset Management said, “Looking ahead to Thursday… we expect an 8-1 vote in favour of no cut, with Swati Dhingra being the lone outlier.

While there’s optimism within the monetary policy committee that inflation will close in on the all-important 2% as the fuel effect falls out, the Bank of England will be deeply aware of the second-round inflation effect.

Rather than patting itself on the back when the 2% figure is hit, it will require clear evidence that inflation is under control rather than simply hitting a target.

There is much speculation in the city that by June, there could be a cut in rates, but some are suggesting September.

HSBC analysts said, “If the Bank wants to even leave the door open for a June cut, we think it will need to push back against the market in its May communications”.

“Part of this could be in the language – perhaps emphasising that it can cut rates while keeping them restrictive. And part of it may be in the forecast profile: we suspect the MPC will revise down its inflation forecasts such that they are below target over the medium term.”

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