GBP: “Bank of England Holds Interest Rates at 5.25%, Nears First Rate Cut Since 2020”
In today’s monetary policy meeting, the Bank of England opted to maintain interest rates at 5.25%. This decision resulted in a depreciation of GBP pairs against other currencies. Out of the 11 committee members, only 2 voted in favor of a rate cut.
GBPUSD is moving in Descending channel and market has reached lower high area of the channel
Notably, the forecast for the first quarter of 2024 indicates a GDP expansion of 0.40%, a significant improvement from the 0.30% decline observed in the previous quarter of 2023. The unexpected growth in economic activity was a key factor influencing the committee’s decision to keep interest rates unchanged during this meeting.
The Bank of England has opted to maintain its primary interest rate for the United Kingdom at 5.25%, a level not seen in 16 years, amidst persistent concerns among several policymakers regarding certain critical inflation indicators.
In a statement released on Thursday, the Monetary Policy Committee (MPC) of the Bank, comprising nine members, conducted a vote resulting in a 7-2 majority in favor of keeping the rates unchanged. Notably, the two dissenting members advocated for a quarter-point reduction, marking a notable shift from the previous vote where only one member supported such a cut.
The increasing number of policymakers advocating for a rate reduction signals a growing inclination towards implementing cuts in the near future.
Similar to the recent decision by the U.S. Federal Reserve to maintain its rates, the majority of the MPC expressed a preference for acquiring additional evidence substantiating the containment of inflationary pressures.
The Bank of England, akin to the U.S. Fed and other central banks globally, embarked on a trajectory of aggressive interest rate hikes towards the end of 2021. These measures were undertaken in response to inflationary surges initially triggered by supply chain disruptions amid the COVID-19 pandemic, which were subsequently exacerbated by Russia’s incursion into Ukraine.
GBP: “Bank of England Holds Rates at 5.25%, Hints at June Cut”
During today’s meeting of the Bank of England’s Monetary Policy Committee, interest rates were maintained at 5.25%. Following this decision, currency pairs involving the GBP experienced a decline against their counterparts. Notably, out of the 11 committee members, only 2 voted in favor of a rate cut.
GBPCHF is moving in Descending channel and market has reached lower high area of the channel
Projections indicate that the gross domestic product (GDP) for the first quarter of 2024 is expected to expand by 0.40%. This growth represents a notable improvement from the 0.30% decline observed in the previous quarter of 2023. The unexpected expansion in economic activity played a pivotal role in the committee’s decision to leave interest rates unchanged during this meeting.
The Bank of England has hinted at the potential initiation of interest rate cuts as early as June, following observations of inflation trends moving in a favorable direction. Despite this indication, the Bank opted to maintain borrowing costs at the current rate of 5.25% for the sixth consecutive time.
In its accompanying statement, the Bank highlighted that inflation appeared to be on track to reach its target of 2%, with projections indicating a decline to just 1.6% within two years. This trajectory opens up the possibility of future reductions in interest rates.
Offering a more optimistic evaluation of the economic landscape compared to its February report, the Bank suggested that the UK recession had likely concluded, forecasting a 0.4% growth in the economy for the first quarter of the year. Official estimates of growth from the Office for National Statistics are expected to be released on Friday.
Among the members of the Bank’s nine-member Monetary Policy Committee (MPC), opinions were divided regarding the decision to maintain interest rates. Two members, Swati Dhingra and Dave Ramsden, advocated for an immediate reduction to 5%. Dhingra had previously been the sole voice calling for a rate cut during the previous MPC meeting.
Andrew Bailey, the Governor of the Bank, hinted at the possibility of a rate cut at the next meeting in June, emphasizing the importance of upcoming data on inflation, economic activity, and the labor market in informing the decision-making process. However, Bailey underscored that a rate adjustment in June was neither guaranteed nor ruled out.
The Bank expressed confidence that a modest economic recovery would not spur inflationary pressures, positioning the UK for potential rate cuts throughout the year. Financial markets had already priced in expectations of two rate cuts in 2024, with the first anticipated in August.
Bailey emphasized the likelihood of rate cuts in the coming quarters to ensure that inflation remains aligned with the target, attributing this necessity to anticipated subdued wage growth across the private sector amid a modest increase in unemployment.
The Bank’s decision to adopt a wait-and-see approach was driven by the majority consensus that further evidence of sustained low inflation was needed before committing to rate cuts. Bailey expressed optimism regarding the direction of inflation trends but underscored the necessity of corroborating data before implementing policy adjustments.
Inflationary pressures exhibited a downward trend, with a decrease to 3.2% in March and an anticipated further decline to 2% in April, attributed partly to a reduction in the energy price cap. However, the Bank cautioned that inflation could be volatile throughout the year before stabilizing towards an average of 2.5% in the second half of 2024, followed by a subsequent decline in 2025 and 2026 to 1.6%.
Despite these favorable indicators, the Bank acknowledged lingering risks associated with the conflict in the Middle East potentially disrupting shipping on major trade routes, thereby elevating prices—a factor that warrants ongoing monitoring.
GBP: “Bank of England Holds Rates, June Cut Pending Data”
The BoE Monetary Policy meeting kept interest rates at 5.25% today and GBP Pairs Fall down against counter pairs. Only 2 members vote for rate cut out of 11 members. Q1 GDP is expected to expanded by 0.40% in Jan-march 2024 and it is up from 0.30% decline in the Last quarter 2023. The economy is expanded more than expected makes BoE kept the rates unchanged in this meeting.
GBPCAD is moving in Descending channel and market has reached lower high area of the channel
The Bank of England (BOE) adhered to market expectations by maintaining interest rates on Thursday, asserting that its current tight monetary policy was effectively curbing inflation. However, it cautioned against assuming a definitive rate cut in June.
During its deliberations, the central bank’s Monetary Policy Committee (MPC) voted 7-2 in favor of retaining rates at their existing levels, with the minority advocating for a reduction. This decision maintains the BOE’s key Bank Rate at 5.25%. Despite this stance, the MPC underscored the persistent elevation of indicators pertaining to inflation, highlighting a services inflation rate of 6% recorded in March. Additionally, it noted that geopolitical factors were exerting upward pressures on near-term price expectations.
In a noteworthy addition to its monetary policy statement, the BOE outlined its intention to closely evaluate forthcoming data releases, particularly those shaping the assessment of receding inflationary risks. Notably, two consumer price index reports and two sets of wage growth data are scheduled for release prior to the central bank’s next meeting in June.
Anticipation has been mounting for the BOE to initiate interest rate cuts during the summer months, with market projections indicating a 25 basis point reduction in August and an overall 50 basis points in cuts for the year. Some economists have speculated on a potential rate cut as early as June, with market probabilities hovering around 45% following the recent announcement.
Forecasts suggest a substantial drop in headline inflation for the UK in April, potentially falling below the BOE’s 2% target, driven in part by reduced energy prices. The BOE’s latest release anticipates headline inflation approaching 2% in the near term, with a subsequent uptick later in the year as the energy market’s impact wanes.
In terms of economic growth, the BOE projects a 0.4% expansion in UK gross domestic product for the first quarter of the year, followed by a 0.2% growth in the second quarter. This outlook comes after the economy experienced a shallow recession in the latter half of 2023.
During a press conference following the announcement, BOE Governor Andrew Bailey emphasized the need for vigilance in monitoring data releases, highlighting the dynamic nature of decision-making at each meeting.
Despite political independence, the BOE’s policy decisions occur amidst the backdrop of an impending UK general election. The ruling Conservative Party, currently trailing in polls, aims to demonstrate its economic credibility, leading to speculation on the timing of Prime Minister Rishi Sunak’s election call, anticipated in the latter half of the year.
In contrast to the European Central Bank’s firm guidance on a potential rate cut in June, the BOE’s messaging remains cautious and data-dependent. The divergence in monetary policy outlooks reflects differing inflation dynamics between the UK and the US, with the latter experiencing higher-than-expected inflation levels in March.
The BOE’s messaging suggests a deliberative approach to policy adjustments, with data releases likely shaping the timing of any future rate cuts. While the possibility of a rate cut in June or August remains uncertain, the BOE appears poised to undertake monetary easing measures in the summer months.
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