The Bank of England has held rates for the fifth consecutive meeting after the Monetary Policy Committee voted in favour of maintaining rates at 5.25%.
The decision follows on from the US Federal Reserve’s decision to hold rates last night, while the European Central Bank took a similar course of action last week.
MPC voting was almost unanimous, with eight of the nine members in favour of the pause, while one voted for a 25bps cut.
Reacting to the decision, Ed Monk, associate director at Fidelity International, said: “The hawkish tone from the BoE in keeping rates on hold will disappoint households, investors, and the government. All could do with some relief from higher borrowing costs, but the Bank’s words today indicate it may be some months before it agrees. Still only one rate-setter on the MPC was willing to vote for a cut now, although two others no longer want a rise.
“Choosing when to cut rates is like trying to catch a falling knife – moving either too early or too late is likely to be painful. We know structural effects are likely to bring the headline rate of inflation down to near target in the coming months. Against that backdrop rates at their current level will appear even more painful. Yet the Bank knows inflationary pressures remain strong, in wages and service sector prices in particular.
Richard Garland, chief investment strategist at Omnis Investments, said that March’s meeting came too soon to consider a cut despite the recent sharp fall in core inflation.
Earlier this week, the ONS revealed UK inflation had fallen to 3.4% for February – lower than analyst expectations.
Garland said: “Wage growth and service sector inflation are both still too high and sticky for comfort. They are moving in the right direction however, which means that a new cycle of interest rate cuts should emerge in the summer.”
Caution the ‘name of the game’
Hargreaves Lansdown head of money and markets Susannah Streeter said that with the release of recent economic data, the central bank’s caution is not a surprise.
“The BoE has adopted the same stance as the Fed yesterday and the ECB last week, indicating that inflation is following the right path, but it’s still wary about the potential for prices to bubble up again,” she said.
“Squashed demand in the economy is returning with the latest PMI snapshot for March indicates the UK economy has edged away from recession, with economic output forecast to grow by 0.25% in the first quarter of the year.
“The Purchasing Manager’s Index threw up a bit of a worry for policymakers given that its measure of selling prices rose to the highest level since last July, an indication of continued upwards pressure. Input costs are continuing to climb due to wage pressures and higher shipping fees, so companies are pushing up prices. So, it’s not surprising that caution remains the name of the game for the Bank.”
