March 21, 2024
The Bank of England’s Monetary Policy Committee (MPC) at its meeting ended March 20, 2024, voted to maintain the Bank Rate at 5.25%, as opposed to reducing the bank rate by 0.25 percentage points. The MPC believes that the bank rate will help sustain growth and employment, and ultimately meet the 2% inflation target.
Since the previous meeting of the Monetary Policy Committee (MPC), there has been an upward shift in market-implied paths for policy rates in advanced economies. In the United States and the euro area, inflationary pressures have eased, albeit slightly less than anticipated. Notable risks persist, particularly stemming from developments in the Middle East, such as potential disruptions to shipping in the Red Sea. Despite a decline in the latter half of the previous year, UK GDP and market sector output are expected to rebound in the first half of this year. This optimism is supported by ongoing improvements indicated by business surveys, signalling a brighter outlook for economic activity.
In February, twelve-month CPI inflation decreased to 3.4% from 4.0% in January and December, slightly below the expectations outlined in the February Monetary Policy Report. Despite this decline, services consumer price inflation remains high at 6.1% in February, although most indicators suggest a continued easing of short-term inflation expectations. Projections indicate that CPI inflation is anticipated to dip slightly below the 2% target in the second quarter of 2024, with this forecasted trajectory influenced by the freeze in fuel duty announced in the Budget. While there’s an expectation for a slight increase in CPI inflation in the third and fourth quarters, largely due to direct energy price contributions, services price inflation is expected to gradually decrease over time.
The Monetary Policy Committee (MPC) reaffirmed its commitment to maintaining the inflation target of 2% at all times, emphasizing the importance of price stability in the UK monetary policy framework. While recognizing that inflation may deviate from the target due to various shocks and disturbances, monetary policy aims to ensure a sustainable return of CPI inflation to the 2% target in the medium term. Despite a relatively sharp decline in headline CPI inflation, attributed partly to base effects and external factors such as energy and goods prices, the Committee opted to maintain Bank Rate at 5.25%. The current restrictive monetary policy stance is dampening activity in the real economy, resulting in a looser labour market, and mitigating inflationary pressures. However, indicators of inflation persistence remain elevated, prompting the Committee to maintain its cautious approach.
The Monetary Policy Committee (MPC) reiterates its commitment to maintaining a restrictive monetary policy stance until inflation returns sustainably to the 2% target in the medium term, aligning with its remit. Recognizing the need for an extended period of restrictive policy to mitigate the risk of inflation remaining above target, the MPC stands ready to adjust policy as necessary based on economic data. Close monitoring of indicators of persistent inflationary pressures and overall economic resilience, including labour market tightness, wage growth, and services price inflation, will guide the Committee’s decisions. Consequently, the MPC will continue to review the appropriate duration for maintaining Bank Rate at its current level.
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