BOE Holds Rates Steady, Aims for Sustainable Inflation Control

Key Points

  • BOE maintains 5.25% rate to ensure inflation returns to target.
  • Inflation falls to 4%, but still double the BOE goal.
  • Economic outlook mixed amid global growth and inflation concerns.


The Bank of England’s (BOE) latest monetary policy statement, interest rate decision, and minutes reveal a continued effort to combat inflation while fostering economic growth and employment.

Interest Rates and Inflation

Over the past two years, the BOE has progressively raised interest rates to curb inflation. This approach appears effective, as inflation in the UK has decreased from a peak of 11% in 2022 to 4% by December 2023. However, inflation still exceeds the BOE’s 2% target, necessitating further measures to ensure a sustained reduction.

Monetary Policy Committee’s Decision

The Monetary Policy Committee (MPC) voted 6–3 to keep the Bank Rate at 5.25%. While two members favored a 0.25% increase to 5.5%, one member advocated for a decrease to 5%. The MPC’s projections, conditioned on a market-implied path, forecast a decline in the Bank Rate to around 3.25% by the end of the forecast period.

Global and Domestic Outlook

Globally, GDP growth remains subdued with stronger activity in the U.S. Inflationary pressures are easing in the euro area and the U.S., with significant drops in wholesale energy prices. However, risks persist due to Middle East tensions and potential shipping disruptions through the Red Sea.

In the UK, GDP growth is expected to gradually improve, offsetting the drag from past rate increases. The labor market remains historically tight, though unemployment is predicted to rise slightly. The MPC anticipates a temporary drop in CPI inflation to 2% in 2024 before a slight increase later in the year.

Inflation Projections and Risks

The MPC projects CPI inflation around 2.75% by year-end, remaining above the target for most of the forecast period due to domestic inflationary pressures. However, risks to this projection are skewed to the upside, primarily due to geopolitical factors. Inflation is expected to stabilize at 2.3% in two years and 1.9% in three.

Policy Stance and Future Outlook

The MPC emphasizes the necessity of maintaining a restrictive monetary policy to achieve the 2% inflation target sustainably. This stance will be adjusted as economic data dictates, with close monitoring of inflationary pressures and overall economic resilience.

Voting and Operational Considerations

Six MPC members voted to maintain the Bank Rate at 5.25%, with differing opinions on either increasing or decreasing the rate. The total stock of assets held for monetary policy purposes stood at £738.0 billion.

In conclusion, the BOE remains committed to its inflation target, balancing the need for economic growth with the imperative to control inflation. The MPC’s decisions reflect a cautious approach amid a complex economic landscape, with a readiness to adapt as new data emerges.

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