- The Bank of England (BOE) left interest rates on hold at today’s meeting.
- This marks a sixth straight time that the central bank has kept the cash rate unchanged at 5.25%.
- The British pound edged lower following the rate announcement before recovering.
The BOE’s decision to hold rates was widely expected, but the breakdown of the Monetary Policy Committee (MPC) vote was a surprise. Out of nine members, seven voted to maintain rates while two members voted to lower rates by 0.25%. At the April meeting, eight members voted to hold rates with only one in favor of lowering rates by 0.25%, and the markets had forecast a repeat at today’s meeting.
The minutes of the meeting referred to the lack of unanimity among MPC members, noting twice that there was a “range of views” among members – once, over inflation risks and second, over the need to make a change in the cash rate. BOE Governor Bailey has a solid majority but if additional members dissent in upcoming meetings, it could affect the credibility of the central bank in the eyes of the markets.
What’s next for the BOE? Governor Bailey didn’t reveal his cards, stating after the meeting that “a change in the bank rate in June has neither been ruled out or a fait accompli”. Bailey also stressed that the BOE could start to cut before the Federal Reserve, which has delayed plans to lower rates due to rising inflation in the US.
The markets had hoped to see Bailey signal a cut in June, much as the European Central Bank did at its April meeting, when ECB President Lagarde said a rate cut was coming in June barring an unexpected rise in inflation. Governor Bailey, however, opted to be more cautious and preferred to keep the markets guessing over the timing of a rate cut.
The GBP/USD currency pair opened the day at $1.2497 and declined by as much as 0.40%, touching a low of $1.2445 after the rate announcement. The pound recovered all of these losses and was trading later at $1.2500, almost unchanged on the day.
The FTSE 100 Index started the day at 8354.05 and climbed as high as 8393.39 (0.46%) after the rate announcement but has given up about half of those gains. Currently, the FTSE 100 Index is up by 17.44 points (0.20%) on the day at 8369.55.