Closing post
Time for a recap.
The Bank of England has dropped the broadest possible hint that the next move in interest rates will be downwards after forecasting inflation will fall below 2% within months, despite keeping borrowing costs unchanged for a fourth consecutive time.
Threadneedle Street stressed that more evidence was required that inflation would stick at the target set by the government before the Bank could deliver a first cut to borrowing costs since the start of the pandemic. It warned that risks from fast-rising prices remained amid the cost of living crisis.
In a widely expected decision, the Bank’s monetary policy committee (MPC) voted by a majority to keep interest rates at the current level of 5.25%, the highest level since the 2008 financial crisis.
However, one member of the panel – the independent economist Swati Dhingra – pushed for an immediate reduction in borrowing costs, in a powerful signal to financial markets that the central bank was edging closer to taking action.
Two more policymakers, Jonathan Haskel and Catherine Mann – pushed for a further quarter-point increase in the Bank rate.
BoE governor Andrew Bailey said the recent falls in UK inflation were good news, but cautioned that the Bank needed to have more confidence that price rises would keep slowing, and stay low.
Governor Andrew Bailey explains today’s decision to hold interest rates at 5.25%. pic.twitter.com/7DUyd2BumC
— Bank of England (@bankofengland) February 1, 2024
Bailey told reporters in London that inflation may rise a little in January, but is expected to then drop to the 2% target this spring, before rising again.
He said:
“We have had good news on inflation over the past few months. It has fallen a long way, from 10% a year ago to 4%. But 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 lower interest rates.”
Bailey also warned that the Bank couldn’t simply cut rates once inflation hits 2%, but explained that the bank has dropped its previous guidance that the next move in rates was more likely to be higher than lower.
Chancellor Jeremy Hunt banged this message home too, saying it was good news that interest rates have peaked.
Here’s the rest of today’s news:
Updated
For those partial to a chart showing economic metrics over decades here's a look at the Bank of England base rate compared with inflation since 1975. The preferred measure of inflation changed in 1989. Pre 2008 it was the norm for base rates to be higher than inflation. pic.twitter.com/BHwRSQbbCu
— David Edwards (@ScattClouds) February 1, 2024
