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The Bank of England said it required “more evidence” that inflation is falling before implementing interest rate cuts, as it held borrowing costs at 5.25 per cent.
At Thursday’s meeting of the Monetary Policy Committee, the BoE signalled it was ready to consider cutting rates for the first time since inflation spiked after the pandemic — but would not do so yet.
“We need to see more evidence that inflation is set to fall all the way to the 2 per cent target, and stay there, before we can lower interest rates,” said Andrew Bailey, BoE governor.
Traders scaled back their bets on spring rate cuts after the announcement. Swaps markets were pricing in a roughly 45 per cent change of a reduction by May, down from 60 per cent earlier in the day.
But Bailey added that the bank had seen “good news on inflation over the past few months”. The BoE also said it would “keep under review” how long rates should be held at current levels.
Both the Federal Reserve and the European Central Bank have signalled in recent days that they will hold off rate cuts until they get more evidence that inflation is fully under control.
US Fed chair Jay Powell said on Wednesday that cuts in March were not his central bank’s “base case”.
The benchmark FTSE 100 barely moved following the BoE’s announcement, up 0.4 per cent. The mid-cap FTSE 250 remained 0.2 per cent lower.
The UK central bank raised interest rates aggressively in 2022 and 2023 in an effort to hold back the pace of price rises, but the most recent increase was in August last year.
Consumer price inflation in the UK rose to 4 per cent in December from 3.9 per cent the month before, but that left the rate far below the levels exceeding 10 per cent that it reached a year earlier.