BOE Also Decides Interest Rate Today... Expected to Hold Steady Following Fed

Following the U.S. Federal Reserve (Fed), the Bank of England (BOE), the central bank of the United Kingdom, is also expected to keep its benchmark interest rate unchanged. Despite recent indicators showing a slowdown in inflation, it is anticipated that the BOE will take a cautious approach similar to the Fed. The market is increasingly forecasting a rate cut as early as June.

[Image source=AFP Yonhap News]

On the 20th (local time), major foreign media including The Independent reported that the BOE is expected to hold its interest rate steady at 5.25%, the highest level in 16 years, at the Monetary Policy Committee meeting scheduled for the 21st.

At the February meeting, the majority favored keeping rates unchanged, with only one out of nine members voting for a rate cut. Two members were identified as hawks (favoring monetary tightening) advocating for a rate hike. Robert Wood, Chief UK Economist at Pantheon Macroeconomics, predicted, "I expect the same voting outcome this time." Matthew Swannell, an analyst at BNP Paribas, also assessed, "The indicators do not seem likely to move the BOE's needle."

The key issue is whether the BOE will provide specific hints regarding the timing of a rate cut at this meeting. Barron's stated, "The BOE is expected to follow the Fed in holding rates steady," adding, "Like the Fed, the question is when they will cut rates." Alice Hain, an analyst at BestInvest, said, "Since the prevailing view is that rates will not be cut until this summer, all eyes will be on whether the central bank's statements contain hints suggesting the possibility of an early rate cut."

Accordingly, the market is closely watching how opinions will be divided among committee members at the upcoming meeting. In February, opinions split into three camps: rate hikes, rate cuts, and holding steady. However, with inflation indicators having slowed further, there is speculation that two hawks who previously advocated for hikes, Jonathan Haskel and Catherine Mann, may shift to supporting a hold.

Dan Hanson, an economist at Bloomberg Economics, noted, "How the committee's opinions diverge will indicate whether the start of a monetary easing cycle is becoming visible." Swati Dhingra, a prominent dove (favoring monetary easing) within the BOE, is expected to advocate for a rate cut again this time.

Currently, the market consensus favors the first rate cut occurring between June and August. Economist Hanson stated, "Our base case scenario is the first rate cut in June." The interest rate futures market is pricing in a 64% probability of a rate cut at the June meeting. Barron's commented, "Unlike the U.S., the UK experienced a recession in the second half of last year," adding, "Since the economic weakness has reduced inflationary pressures, the BOE can cut rates more easily than the Fed."

Compared to the U.S. and others, where recession concerns were relatively lower, the UK has recently seen a clear slowdown in inflation indicators. The UK’s Consumer Price Index (CPI) for February, released the previous day, rose 3.4% year-on-year, significantly easing from the prior month’s 4%. This is the lowest level since September 2021 and below market expectations of 3.5%.

However, there is also analysis suggesting that the BOE will remain cautious in its war against inflation and watch the Fed’s actions first. James Smith, an economist at ING, said, "If service inflation and wage growth indicators show downward surprises, a rate cut around June is possible," but he added, "August is more likely." Susanna Streeter, an analyst at Hargreaves Lansdown, also predicted, "The BOE will want more evidence of easing inflation before cutting rates." Earlier, UBS also postponed its forecast for the BOE’s rate cut from May to August.

Meanwhile, the BOE’s new economic outlook will not be released at this meeting. Accordingly, no separate press conference will be held. The next Monetary Policy Committee meeting is scheduled for May 9.

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