Bank of England Interest Rate Decision: What to Expect

The Bank of England (BoE) announces its monetary policy decision on February 1. The central bank is expected to keep interest rates at 5.25% this week, but there is hope that the Monetary Policy Committee will signal that it is now considering cuts. Interest rate swap markets suggest that there is about a 98% chance that rates will be held at the highest level since 2008.


At the bank's last meeting in December, six of the nine Monetary Policy Committee (MPC) members voted to keep rates on hold, with three backing another hike.


The central bank will release its most recent estimates for the UK economy and its conclusion this week. There have been many below-expected inflation readings in the UK since the last estimate, yet the most recent data for December was higher than anticipated. Due to such adverse shocks, the bank's projection for inflation through the end of the year is probably more optimistic.


Contrary to expectations of a decline to 3.8%, inflation rose slightly to 4% in December from 3.9% in November. Even with the Consumer Price Index double the bank's objective, this aligns with global trends, especially in the US and the Eurozone, where inflation has resumed its upward trajectory. The monetary policy report that goes with Thursday's decision will provide more accurate inflation estimates. However, the UK may see inflation return to targets sometime next year.


The UK's inflation figure remains above the US and Germany's December figures rate of 3.4 percent and 3.8 percent, respectively.


Economists predict inflation may return to the 2% target sometime this spring, far earlier than the BOE's projected end of 2025. The decline has been rockier than anticipated, and price forecasting presented several difficulties for economists.


The primary distinction that makes the BoE's task more challenging is that service inflation appears to be increasing, which is often explained by businesses paying their staff higher wages.


The BoE's attempts to rein in inflation may have contributed to last year's UK recession. According to official statistics, the economy shrank in the third quarter of 2023, and if December's numbers are weak, the economy may have shrunk in the fourth. According to 'technical definitions,' a recession lasts for two consecutive quarters.




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