Bank of England holds rates for now, but a rate cut could come August

The Bank of England kept its key interest rate pending 4.25% at its meeting on Thursday, economists expecting the central bank waiting until August before reducing again.

Six out of nine from the BOE monetary policy committee have chosen to have rates with three opting for a drop of 25 base points.

“Underlying United Kingdom GDP [gross domestic product] Growth seems to have remained low, and the labor market continued to loosen, leading to clearer signs that a margin of relaxation has opened over time, “the central bank said in a statement.

“The wage growth measures continued to moderate and, as in May, the Committee expects a significant slowdown in the rest of the year,” he said, adding that the MPC “remains vigilant on the extent to which the relaxation of the pressures of the remuneration would feed on the inflation of consumer prices”.

The central bank has warned that “global uncertainty remains high”, the energy prices increasing due to the climbing of the conflict in the Middle East. “The committee will remain sensitive to increased unpredictability in the economic and geopolitical environment, and will continue to update its risk assessment to the economy,” he added.

There are still bilateral risks to inflation, concluded the Central Bank, noting that “given the prospects, and continuous disinflation, a progressive and meticulous approach to the additional withdrawal of monetary policy remains appropriate”.

“Monetary policy is not on a predefined path,” she said in a probable signal for markets and investors to moderate expectations of lower rate.

Political decision-makers ‘decision to hold rates comes after the latest data on Wednesday has shown that the United Kingdom’s annual inflation rate reached 3.4% in May, satisfying analysts’ expectations but persisting well above the 2% banking target.

Earlier this year, the Bank of England said that it expects inflation to reach 3.7% in the third quarter, before starting to cool off next year. However, he does not always know the outcome of the global policy of world prices from American president Donald Trump, and with a conflict exploded in the Middle East, inflationary pressures could increase.

These pressures, associated with the growth of the United Kingdom after an economic contraction of 0.3% in April, put the central bank in a difficult position on the question of whether – and when – to reduce rates.

“The bank last month divided 5 [MPC members] To 4 about the decision to reduce rates a little, and the majority saw the economy slow down and the threat of a faster slowdown if the prices and other American policies infiltrate the economy, so it is concern, “said John Gieve, former deputy governor of the Bank of England, CNBC on Wednesday.

“The question was:” Should we cut now or wait a little? “That was how they looked [then]”, He added.

“The Middle East conflict complicates things more. First, it could have an effect on oil prices that could increase inflation even more … And, secondly, it could disrupt the global economy and trade, which would once again be downward pressure on our growth, so it is precisely where the bank is at the moment,” he told CNBC Europe. “”

The economists interviewed by Reuters are largely expecting that Boe’s political decision -makers reduce the rates of 25 base points (BPS) during the next rally in August and make a cup of 25 additional BPS in the fourth quarter.

Grieve said that the confluence of external, uncontrollable and potentially inflationary pressures – as well as the internal growth, taxation and expenditure prospects – made the forecast of the BOE strategy.

“What the bank and the markets are waiting for is that interest rates will go out at 4% or perhaps a little more the rest of the year, unless there is a very great development on the world scene, but we do not know how this conflict in the Middle East will take place, and we do not know how the prices … will play. [Bank of England policymakers] will look at the month a month, “said Grieve.