MNI BOE WATCH: BOE Holds, Hiking Bias Removed From Statement

The Bank of England left interest rates unchanged at 5.25% on Thursday, but removed a reference to possible rate hikes if inflation proved more persistent than expected from its policy statement.

The move to a more neutral policy stance came despite two members of the Monetary Policy Committee, Jonathan Haskel and Catherine Mann, again voting for a 25-basis-point hike. Against that, Swati Dhingra, the MPC's most dovish voice in recent months, voted to cut by 25bp. Dhingra speaks at an MNI event later this month. (See INVITE: Livestreamed MNI Connect VC with BoE Dhingra)

The Bank removed a line saying further tightening of monetary policy would be required if "there were to be evidence of more persistent pressures". However, language calling for policy to remain restrictive for sufficiently long to return inflation to target was retained, as was a phrase introduced in November specifying that this would be for an extended period of time. (MNI INTERVIEW: Forward Guidance Key Tool However It is Called)

DEBATE SHIFTED

Speaking to the press after the announcement, Governor Andrew Bailey said the debate on the MPC had shifted from "how restrictive to how long in order to ensure a return to (the inflation) target".

Bailey gave no hint as to when Bank Rate cuts could come, saying it was "too soon to take that decision". However, as the MPC noted at length in the Monetary Policy Report, he accepted that rates could move lower and still remain restrictive.

The overall stance of the MPC, with inflation moving to just below target over the three-year forecast horizon on a market rate profile was a "cautious state of mind," Deputy Governor Ben Broadbent said, adding that rates could only be cut when there was sufficient confidence that inflation was heading sustainably to target.

Projections based on market rates saw inflation at 2.8% in Q1 2025, despite a dip to 2.0% in Q2 2024, as energy inflation dynamics turned against a lower headline number later in the year. Further out, it was seen at 2.3% in Q4 2026 and 1.9% in 2027.

On constant rates, inflation is seen at 2.2% in Q1 2025, 1.4% in 2026 and 0.9% in 2027.

Growth is still expected to be sluggish, picking up modestly on market rates towards the end of the forecast period. Q2 growth is seen at only 0.1%. According to the MPC, the UK labour market 'has continued to ease, but remains tight by historical standards. However, unemployment is seen picking up somewhat. Wage growth remains elevated, though is expected to slow somewhat in coming quarters, policymakers noted.