Decline in Inflation Finally Achieved - When Can Interest Rates Decrease?
The Bank of England (BoE) has signalled a potential interest rate cut in the coming months, with its minutes suggesting that a decrease is the most likely outcome at the next meeting in August. This shift in tone comes as the UK continues to grapple with high inflation, particularly in the services sector, where prices are still running at 5.7% year-on-year.
Last week, the BoE's Monetary Policy Committee (MPC) voted to hold interest rates at 5.25%, but the minutes revealed a more cautious stance, hinting at a possible rate reduction in the near future. Whether the first cut comes in August or September, rates are expected to "come down".
The annual services inflation remains a genuine concern due to its proximity to a measure of domestically generated inflation. High wage costs are identified as a contributing factor. However, a near 10% increase in the minimum wage this spring contributed to services inflation, but future rises are unlikely to have such a big impact.
On a positive note, the UK has reached the BoE's 2% inflation target in May for the first time since 2021, thanks in part to a decrease in food-price inflation and an average drop of 1.3% in goods prices over the past year. This has contributed to the return to the target.
In addition, household energy tariffs have fallen, providing some relief to consumers. The European and Swiss Central Banks have already begun cutting rates, but the BoE's MPC is still widely expected to hold the benchmark bank rate at 4.00 percent at the upcoming meeting. Markets anticipate a possible rate cut more likely in November rather than at the next meeting.
Rishi Sunak, the Chancellor of the Exchequer, has attempted to claim credit for the falling inflation, but the BoE's minutes suggest a more complex picture. The minutes also revealed that seven committee members voted to hold interest rates, while two supported a cut.
Investors were pleasantly surprised by the BoE's relatively dovish tone at the meeting, indicating a potential shift in the bank's stance towards monetary policy. However, interest rate cuts may occur in the future, but not immediately, according to the BoE's monetary policy committee.
This article was first published in the website's magazine.
Read also:
- Potential Consequences of Dismantling FEMA Vary Across States
- Railway line in Bavaria threatened by unstable slope - extensive construction site at risk
- Wind Farm Controversy on the Boundary of Laois and Kilkenny
- Puerto Rico's Climate Lawfare Campaign experiences another setback with the dismissal of its deals.
