MNI: BOE Holds Rates At 5.25% in 3-Way Split

The Bank of England left interest rates unchanged at 5.25% at its February meeting, though in a surprising three-way vote split that saw two Monetary Policy Committee members call for a rate hike and one for a cut.

The MPC also tweaked its guidance, dropping a reference to possible rate hikes if inflation persists,  but again said that policy needs to remain restrictive for sufficiently long to return inflation to target and for an extended period of time that began in November.

Though not named in the minutes, it was clear that external member Swati Dhingra said transmission lags meant Bank Rate needed to become less restrictive now, as she argued for a 25bp cut. Against that, two members said the fall in headline inflation was not necessarily reflective of inflation persistence and voted for a 25bp hike in rates. 

Projections based on market rates saw inflation at 2.8% in Q1 2025, despite a dip to 2.0% in Q2 2024. 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.

SLUGGISH GROWTH

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%

Governor Andrew Bailey said 'we need to see more evidence that inflation is set to fall all the way to the 2% target , and stay there, before we can cut rates'.

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, but is expected to slow somewhat further in coming quarters.