BoE Holds Rates at 5.25%

Two
members
preferred
to
increase
Bank
Rate
by
0.25
percentage
points,
to
5.5%.
One
member
preferred
to
reduce
Bank
Rate
by
0.25
percentage
points.

“Since
the
MPC’s
previous
meeting,
global
gross
domestic
product
(GDP)
growth
has
remained
subdued,
although
activity
continues
to
be
stronger
in
the
United
States,”
the
MPC
said.

“Inflationary
pressures
are
abating
across
the
euro
area
and
US.
Wholesale
energy
prices
have
fallen
significantly.
Material
risks
remain
from
developments
in
the
Middle
East
and
from
disruption
to
shipping
through
the
Red
Sea.

“CPI
is
projected
to
fall
temporarily
to
the
2%
target
in
Q2
2024
before
increasing
again
in
Q3
and
Q4.
This
profile
of
inflation
over
the
second
half
of
the
year
is accounted
for
by
developments
in
the
direct
energy
price
contribution
to
12-month
inflation,
which
becomes
less
negative.

“In
the
MPC’s
latest
most
likely,
or
modal,
projection
conditioned
on
the
lower
market-implied
path
for
Bank
Rate,
CPI
is
around
2.75%
by
the
end
of
this
year.
It
then
remains
above
target
over
nearly
all
of
the
remainder
of
the
forecast
period.

“This
reflects
the
persistence
of
domestic
inflationary
pressures,
despite
an
increasing
degree
of
slack
in
the
economy.
CPI
inflation
is
projected
to
be
2.3%
in
two
years’
time
and
1.9%
in
three
years.”

What
Commentators
Think
of
BoE’s
Rate
Hold

Andy
Mielczarek,
chief
executive, SmartSave:

“It’s
important
to
remember
that
the
interest
rate
remaining
static
does
not
mean
savings
products
will
do
the
same
–
fluctuating
swap
rates
and
the
future
actions
of
the
ECB
and
the
Fed
will
precipitate
lower
returns
on
Britons’
saving
pots,
which
will
leave
savers
assessing
their
options
in
the
coming
weeks.

“As
seen
with
last
month’s
surprise
increase,
the
fight
to
bring
inflation
back
down
is
far
from
over,
leaving
UK
households
compelled
to
contend
with
the
challenge
of
interest
rates
for
a
little
while
longer.

“But
this
latest
base
rate
announcement
comes
days
after
many
households
received
their
first
pay
package
with
reduced
NI
contributions,
meaning
more
money
in
the
pocket
and
an
incentive
to
take
advantage
of
the
inflation-beating
saving
opportunities
on
the
market.”

James
McManus,
chief
investment
officer
at
Nutmeg:

“There
has
certainly
been
pressure
on
central
bank
policymakers
to
start
cutting
interest
rates
and
ease
the
plight
of
consumers
struggling
with
higher
mortgage
rates
and
borrowing
costs.
However,
an
uptick
in
the
latest
inflation
data
–
on
both
sides
of
the
pond
–
has
really
left
central
bankers
with
very
little
wiggle
room.

“While
markets
are
still
anticipating
that
rate
cuts
will
happen
this
year,
and
are
likely
in
the
spring,
this
week
has
been
too
early
to
reduce
rates
and
ultimately
increase
the
spending
power
of
consumers,
which
could
in
turn
hamper
efforts
to
get
inflation
back
near
the
2%
target.
There’s
going
to
be
some
more
short-term
pain
in
the
hope
of
long-term
economic
benefit.”

Richard
Garland,
chief
investment
strategist
at
Omnis
Investments:

“There
was
no
chance
of
any
movement
in
interest
rates
today and
unlike
the
Fed
there
is
not
much
room
for
speculation
about
an
early
Spring
cut. 

“However, the
economy
is
set
to
run
sub-par
throughout
2024 so
it
is
simply
a
question
of
when
the
Bank
begins
to
cut
rates
rather
than
if,
in
2024.”

How
Would
a
Future
Interest
Rate
Cut
Affect
Me? 

As
interest
rates
decrease,
cash
savings
rates
on
bank
accounts
and
ISAs
will
likely
decrease,
meaning
savers
may
start
getting
less
bang
for
their
buck
at
the
bank.
However,
lower
rates
will
also
make
consumer
debt
cheaper,
which
could
bring
relief
to
people
with
substantial
credit
card
debt
and
mortgage
holders
with
variable-rate
products.
Those
who
have
remortgaged
into
fixed-rate
products
in
the
last
two
years
may
not
feel
this
until
they
remortgage
once
more.

What
Will
Equities
and
Bonds
do
if
the
BoE
Cuts
Rates?

Markets
tend
to
“price
in”
any
changes
very
quickly,
so
the
reaction
to
this
kind
of
news
will
be
swift.
Conventional
wisdom
suggests
rate
cuts
are
better
for
equities
than
bonds.
But
while
bonds
have
returned
to
favour
in
the
higher
interest
rate
era
because
of
their
tempting
yields,
rate
cuts
may
not
be
bad
for
them
either.
Falling
interest
rates
mean
lower
yields,
which
push
bond
prices
ever
higher
–
a
key
factor
in
total
returns.
And
lower
rates
make
existing
bonds,
and
particularly
those
already
issued
during
a
period
of
rate
hikes,
more
attractive
for
yield.
Many
pension
funds,
for
whom
rising
bond
yields
have
caused
havoc,
could
also
stand
to
benefit
from
a
looser
monetary
approach.
This
may
well
benefit
the
government’s
attempts
to
reignite
the
UK’s
stagnant
economy
as
(in
theory)
it
encourages
institutional
investors
to
plough
money
into
promising
growth
businesses.

How
Will
The
Real
Economy
React?

Over
in
the
“real
economy”,
the
unwinding
of
monetary
policy
will
likely
also
benefit
shops
and
online
businesses
who
have
been
squeezed
by
the
twin
spectres
of
supply
chain
inflation
and
lower
consumer
confidence.
If
higher
interest
rates
have
the
power
to
curb
spending
in
the
UK
economy
and
cool
gross
domestic
product
growth,
lower
rates
will
in
theory
create
the
opposite
effect.
In
practice,
however,
there
is
a
lot
of
uncertainty.
While
lower
interest
rates
tend
to
stimulate
the
economy,
the
UK
is
still
expected
to
suffer
from
low
growth
in
the
coming
years
wherever
rates
end
up.
Either
way,
it
will
take
time
for
the
precise
effects
to
be
visible,
let
alone
quantifiable.

Read
more:
Bonds
Are
Attractive:
Morningstar’s
Outlook
for
2024

Read
more:
What
is
a
Bond?

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