Despite the declining inflation, the British central bank is sticking to its high interest rate policy for the time being, but at the same time is signaling an approaching interest rate turnaround. As expected, the Bank of England left the key interest rate on Thursday at 5.25 percent, the highest level since 2008. The decision in the monetary policy committee was made by seven votes to two. Central Bank Chairman Andrew Bailey said he was “optimistic that things are moving in the right direction.”
Britain’s inflation rate fell to 3.2 percent in March – its lowest level in two and a half years. The monetary authorities are aiming for a value of two percent. Central bankers added in their statement after the policy meeting that they will closely monitor the next economic data. “We need to see more evidence that inflation remains low before we can cut rates,” Bailey said.
The central bankers expect an inflation rate of around two percent for April. They worry that continued strong wage growth and significant price increases among service providers could then push inflation back up. On the futures markets, August 1st was recently seen as the likely date for a first cut, after speculation had previously been based on the September meeting. It would be the first easing since March 2020, when the corona pandemic caused the monetary authorities to cut interest rates.
Cheaper money could boost the island’s economy. The monetary authorities are now expecting economic growth of 0.5 percent this year, after they had only expected half as much growth around February. The Swiss and Swedish central banks recently lowered their key interest rates. The European Central Bank (ECB) has signaled a first step downwards for June.