The Bank of England is widely expected to maintain its main interest rate at a 16-year high on Thursday, opting against a cut despite recent signs of slowing inflation that remains significantly above target.
Analysts anticipate that the BoE will leave borrowing costs unchanged at 5.25 percent, following the release of official data showing a decrease in UK annual inflation to its lowest level since September 2021.
Amid a flurry of central bank activity this week, the Federal Reserve opted to keep US interest rates unchanged on Wednesday but hinted at the possibility of up to three rate cuts before the year’s end.
While market observers project rate cuts by the Fed and the European Central Bank starting in June, the timeline for the BoE is less certain, with the potential for a first reduction possibly not occurring until August.
The Bank of England is poised to maintain its main interest rate at a 16-year peak on Thursday, opting against a reduction as inflation remains significantly above target despite recent deceleration.
Experts anticipate that the BoE will retain borrowing rates at 5.25 percent, following the release of official figures showing UK annual inflation easing to its lowest level since September 2021.
Amidst a flurry of activity among central banks this week, the Federal Reserve opted to keep US interest rates unchanged on Wednesday but hinted at the possibility of three rate cuts by year-end.
Observers anticipate rate cuts from the Fed and the European Central Bank starting in June, although the timing for the BoE remains less certain, with the first reduction potentially occurring as late as August.
“The UK faces similar challenges as the Fed: persistent inflation post-pandemic and an uncertain economic trajectory,” observed Kathleen Brooks, research director at XTB trading group.
ECB President Christine Lagarde cautioned against delaying interest rate cuts, suggesting that the eurozone might witness its first reduction in borrowing costs as early as June.
In addition to the BoE, rate decisions are expected from the Swiss and Norwegian central banks on Thursday. While there’s speculation about a potential cut from the Swiss National Bank, analysts anticipate that Norges Bank will maintain borrowing costs unchanged.
While many central banks are contemplating rate cuts, the Bank of Japan took an uncommon step this week by raising borrowing costs.
On Tuesday, the BoJ terminated its exceptionally aggressive monetary stimulus program, marking the first rate hike since 2007.
The BoJ’s unique strategy of implementing negative rates and extensive asset purchases aimed to revitalize economic growth and spur inflation after Japan endured “lost decades” characterized by stagnation and deflation – a challenge opposite to that faced by most advanced economies in recent times.
Meanwhile, in the UK, February’s inflation dropped more than anticipated, according to official data released Wednesday, sparking speculation that the Bank of England might initiate interest rate reductions in the forthcoming months.
The Office for National Statistics reported a drop in inflation to 3.4 percent last month, marking the lowest level in almost 2.5 years, mainly due to a slowdown in food price growth.
This decline may provide some relief to Prime Minister Rishi Sunak and the Conservative party amid mounting concerns over the nation’s affordability crisis, potentially impacting their chances in the upcoming general election.
Despite Britain’s recession in the latter half of last year, the Bank of England is expected to maintain its interest rates steady for a few more months, given that inflation remains significantly above the central bank’s two-percent target.
With retail banks passing on higher borrowing costs to companies and individuals, the current main rate of 5.25 percent is the highest since February 2008, posing challenges for borrowers but offering benefits to savers.
The Bank of England increased its key interest rate 14 times from late 2021, when it was at a record-low of 0.1 percent, until the second half of last year.
Rising global inflationary pressures followed the lifting of Covid lockdowns, leading to supply chain bottlenecks. Energy and food prices surged further after Russia, a major oil and gas provider, invaded Ukraine, a key grains producer, in early 2022.
Since reaching a 41-year peak of 11.1 percent in October 2022, the UK’s inflation rate has declined significantly.
